“Rule Number 1: Never lose money. Rule Number 2: Never forget Rule Number 1.” — Warren Buffett
What do the wealthy invest in that average people don’t?
It’s actually really interesting!
I’ve spoken with 1,200 investors individually on phone calls.
This is information that they usually don’t share, but we’re pulling back the curtain today.
We’ll let you know what the wealthy are invested in and how they allocate their wealth.
There is a private group of investors called Tiger21.
You have to have a high net worth of over $10 million to be a part of each year.
They post a report of how their members are allocated.
I think one of the reasons they do this is so we can break it apart and see what people who have a lot of money are doing to help protect and preserve their wealth.
The reason this is important is not necessarily that they’re trying to become even wealthier.
It’s to preserve the wealth that’s there.
They’re very interested in what’s happening in the market now and in the future.
You can see in this chart how high net worth people’s resources breakdown.
The highest part of that net worth pie is real estate at 27%.
Stocks are at 25%.
Private equity is 22%.
The lion’s share is in 75% of those three assets.
The rest is broken up in cash, fixed income, hedge funds, and crypto.
We’re going to go through them one by one.
1. Real Estate – 25% of Net worth
Real estate is our business.
We do multifamily real estate.
There was an additional study that came out a while ago that talked about people with a net worth of over $100 million.
This report also claimed 27% of the included participants’ wealth was invested in commercial real estate.
We’re not just saying these people have large portfolios of single family homes.
We’re talking about commercial real estate.
Why would people prefer commercial?
Multifamily is a stabler asset class.
In 2009, the worst point of the great recession, single family homes lingered around a 4% delinquency rate.
Units with 60 or more in a multifamily building had a 0.4% delinquency rate.
That’s 10x less!
Multifamily is much safer and much stabler.
There’s some really unfair advantages of real estate.
You have things like tax benefits and inflation hedges that allow you to use leverage.
That’s why a lot of really wealthy people like investing in real estate.
2. Stocks – 25%
The second thing wealthy people invest in is stocks.
The stock market has had a 600% rise in value over the last 12 years.
That’s a phenomenal amount of growth!
Warren Buffet says it’s better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.
When you’re looking at things, try to find who has a durable, competitive advantage.
Buffett calls it a moat, as in a moat around the castle.
If you think of Coca-Cola, they have a huge brand.
They are well known in every country around the world.
It would be very difficult for you or I to come in and try to compete with Coca-Cola.
You’re looking for that type of advantage when you’re surveying a particular company.
Another thing is private equity, which is the third investment we’re covering.
3. Private Equity – 22%
Private equity are things that are not publicly traded securities.
They could be other business deals.
They could be private placements.
They could be ATMs.
You typically find out about these deals by going to events and networking with other investors.
It’s really important to keep your eyes open and keep looking around.
Be open to new learning experiences!
4. Cash and Cash Equivalents – 13%
This is the dry powder, right?
If the economy suffers or we have crashes, the wealthy have dry powder.
They have money available to go buy stuff.
When we had the last great recession, there were houses going for $30,000 in Phoenix, AZ.
They were going mostly for cash because many people needed cash.
Not a lot of people had money available then, but in general, having some cash can be really helpful.
5. Fixed Income
This one is a little bit of a head scratcher for me.
There is a challenge today with bonds or other fixed assets:
As interest rates rise, bonds with a lower interest rate are actually worth less.
We have had a bull market for 40 years.
It’s been phenomenal for bond values.
But what happens if bond values start going up again?
The current bonds are worth substantially less and they may not even keep up with inflation.
Some people just want to have a fixed payment.
4. Hedge Funds – 3%
A small number of people are managing their money on a hedge fund strategy level.
We won’t go too in-depth with this one but it’s worth noting.
5. Cryptocurrencies – 1%
The last type of investment I want to point out is cryptocurrencies.
It’s really interesting that only 1% of high earner’s total net worth was in cryptocurrencies.
Some may have more; some may have less.
But this means if somebody was worth $10 million, they would only have $100,000 in cryptocurrency.
That sounds like a lot, but if your net worth is $100,000, that would be like having $1,000 in crypto.
I know many people who have much more of their net worth in crypto.
I met someone at an event recently who sold his house in 2016 and put it 100% into Bitcoin.
He’s done very well because Bitcoin has done very well since 2016.
So if you look at what highly wealthy folks are doing, there is some diversification.
One of the major takeaways for me is knowing the highest allocation of wealth investment is real estate.
It’s not a surprise, but it’s still nice to see!
Real estate is an unfair asset class for people who can afford it.
You have higher returns and lower risk.
Now I want to hear from you:
What are you investing in to grow your wealth?
What are the steps that you’re taking now?
Let us know in the comments below!
Before you leave, make sure to check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
