Ever wondered where the rich take their money? Or rather, what do they spend their money on?
Well, most of these ultra-high-net-worth individuals own assets as alternative investments.
These are things poor people rarely put focus into such as expensive wine,
vintage cars, fine art, equity in private companies, and so on.
On average, it is estimated that rich people have over 50% of their money invested on such assets.
So, here are some of the places the genuinely rich keep and put their money.
11. Private and commercial real estate Real estate remains a popular asset for
the uber-wealthy. For over 200 years, investing in real estate has been a favorite investment
to make money and one of the best ways for the rich to build and maintain their wealth.
The trend began with buying the main home and then other apartments,
usually for rentals. After buying personal real estate, they started buying commercial real estate
such as office buildings, hotels, stadiums, and bridges. Statistics show that most rich people
have a large real estate portfolio. Not only that, rich people tend to like ‘exclusive’ real estate.
This is the type of real estate that doesn’t hit the market often. It’s rarely used in
order to make a big return. Instead, this may be some form of a historical building.
As long as it maintains its value, the wealthy are happy. No poor person will see value in an old
historic 17th-century cottage. Instead, they would look for a residential home where they can live
forgetting that the historic building may have a great profit opportunity in the future.
Also, the wealthy tend to focus on commercial properties such as shopping malls,
bridges, and so on. This way they are able to expand their investment portfolio
and expand their income streams.
10. Cash and Cash Equivalents Many, and perhaps most millionaires,
are frugal. This does not mean, however, that they do not have the cash to go around.
They are just extra keen on growing their wealth or spending it on things that really matter.
They do spend on some luxuries too, but the general rule is that they are mostly frugal.
Many rich people store much of their money in cash or liquid cash equivalents.
In this case, poor people do not have the luxury of walking around with a stack of cash.
Rich people even have private bankers who keep up with their asset portfolio as well. This means
they do not have to queue in the checkout windows like other clients. Did you know that on average,
millionaires have up to 25% of their money in cash? This is to compensate for the market
downturn and make cash available as portfolio insurance. They are also interested in cash
equivalents and financial products that are about as fluid as cash. Examples of cash equivalents are
money market funds, certificates of deposit, commercial paper, and Treasury securities.
9. Luxury goods, such as rare whisky, wine, and handbags
You will be shocked that rich people do not purchase expensive luxuries simply because
they have nothing better to do with their money. Real estate agent, Knight Frank is among the
people that shed a light on how profitable luxury goods such as rare whisky can give you a fortune
in returns. Rare Whiskey reaches the pinnacle of the latest Knight Frank Investment Index
(KFLII), revealing that China and the wider Asia Pacific Ultra High Net Value Individuals
(UHNWI) are pushing the new rare whiskey market to dizzying heights. Handbags are also officially
in the asset class. According to a new report, handbags last year was a much better investment
than art. Art recorded a total return of 5% in 2019, but handbags increased by 13%
and are number one in the year. If you know anything about handbags, you know
that Birkins are the holy grail of handbags and only the rich can afford a piece of this pie.
If you’re enjoying this video or learning something so far,
you’ll love the up coming points, so do me a favor in the meantime and give this video a thumbs up.
8. Gold or Silver Back in the old days,
trade was something common, especially the gold trade. It was the form of money that the wealthy
used to prove high or royalty status. Not much has changed. Even though the poor would never
even dream of keeping gold, the rich still use it as an asset and gold has become a
place for the wealthy to store their money. It makes sense because gold will always have
considerable value when paper currency is weak. History has shown us time and time
again how the wealthy have survived by simply buying large amounts of this coveted metal.
The good thing is there’s a type of gold for everyone. If someone wants to invest a
small amount, they may decide to purchase gold coins. Those with a lot of money may decide to
purchase gold bars they can store in an actual safe in a foreign country like Switzerland.
Take note that the rich don’t store large amounts of gold in the US. Current legislation states,
in a crisis the US government has the right to raid and seize safes containing gold,
which is one of the only countries in the world that has this right.
It has already happened once before under Franklin D. Roosevelt during a time of economic
crisis. This is why the rich make a concerted effort to store much of their wealth off-shore.
Gold is desired because it’s easy to purchase and it will never go out of fashion.
But more and more of the rich are looking towards other precious metals.
Precious metals like titanium and platinum are used in the construction of many electronics,
which makes them prized by businesses and governments all over the world.
While not as popular as investing in gold, these precious metals are able to be used in
a practical capacity. It’s no surprise to see them becoming popular among wealthy investors.
7. Artwork (Fine art) One of the reasons why the wealthy possess
a huge amount of fine art isn’t because they’ve fallen in love with every picture and backdrop.
They know it has a lot of value. Even if the concept of art does not make sense to you,
fine art will always have someone who wants to buy it, and those that want to buy it understand
its worth. They are not trying to bargain for every cent, which makes this a good investment.
Poor people on the other hand may view art as a waste of money and the money could have gone
towards other more important expenses or use. However, the truth is that fine art has great
resale value especially limited-edition art that is sought after. Many wealthy individuals are
willing to splurge millions on fine art. Not only that, fine art can even go into the asset
box and generate a passive income. Some wealthy individuals have gathered enough fine art to open
up private galleries, or to lease their art to famous galleries. And this means more money!
6. Private credit Private credit is an asset class
of privately negotiated loans and numerous other forms of debt financing from non-bank lenders.
They can include (but are not limited to) small business loans, venture debt, consumer loans,
invoice factoring, and various other forms of private debt. Most people do not have this type of
asset financing because they simply do not qualify to get one. Rich people have it easier because
most have a financial track record to show as well as decent credit score history to back them
up unlike poor people. And this one example shows that, the lack of money makes everything harder.
5. Speculative (Cryptocurrency) Most people have not bought into this craze but
the rich love risk. Especially risk that promises some high returns. It is estimated that there are
around 100,000 cryptocurrency millionaires out there with the majority holding Bitcoin.
The idea alone can challenge a poor person because cryptocurrency uses a lot of technology to handle,
maintain and transact. Things that most poor people lack access to. The good part is that you
do not have to stake so much in order to see some returns. More and more, cryptocurrency is
becoming accepted as a legitimate investment that deserves a look when trying to accumulate wealth.
4. Rare or Vintage Cars
Millions of Americans are involved in car collecting,
but not the type that poor people cling onto like old cars they drove in their teenage years.
The old muscle car or British roadster you bought in college may still have a place of honor in your
garage and see use as a weekend cruiser, but the rich see vintage cars more than just collectibles.
They can be used as financial securities. A restored vintage Volkswagen Beetle or
suicide-door Lincoln Continental can be purchased for less than $20,000,
driven lightly for years, and then sold for a (probably modest) profit. But what about high-end
collectibles that cost seven or eight figures? They aren't for everyone, but rich individuals
can use them to diversify their holdings, make money, and maybe even drive on occasion.
The Top Index was up 33.78% for the year 2019, and more than 500% over the preceding 10 years
thanks to increasing global wealth chasing a limited number of super-collectible cars.
The S&P 500 was up 30.5% over the same period. Another classic car index is run
by the insurance company Hagerty. At the high end of the classic car market, those selling for more
than $1 million, you'll find relatively obscure older brands such as Hispano-Suiza and Delahaye,
as well as names that are still well-known today, such as Rolls-Royce and Jaguar. Even
brands not known for high-end exotics may become collectible: Toyota's (TM) beautiful 2000GT,
built from 1967 to 1970, can command more than a million dollars at auction. So, if you have some
change to spare, why not splurge on an oldie? It will make you some goldie in the future!
3. Public companies (Stocks) Ultra-rich investors may hold
a controlling interest in one or more major companies. But, many of them hold a portfolio
of only a few equity securities while some are all about simplicity. They invest in
index funds and dividend-paying stocks. They like the passive income from equity
securities just like they like the passive rental income that real estate provides.
They simply don’t want to use their time managing investments. Stocks also have low
management fees and excellent diversification. Of course, they are also interested in capital
appreciation but, for some, that’s less of a concern than generating current income.
2. Private equity and hedge fund Unless you are a multimillionaire,
you may not participate in a hedge fund or buy into a private equity fund.
Public equity is well known since its shares trade on stock exchanges. One of
its advantages is its liquidity. You can readily liquidate your public equity or shares of stock.
Private equity funds, on the other hand, generally get their investments from large organizations
like universities or pension funds. Investors in private equity funds must be accredited
investors with a specific net worth, usually at least $ 250,000. This amount already is
more than what a poor person could have lying around. Accredited investors can
be both individuals and organizations, but are defined by regulation. In other areas,
private equity funds do not have to comply with as many regulations as public equity funds.
If you are an accredited investor, some of the ultra-rich people will invest in private equity.
Hedge funds are not the same as private equity. Hedge funds use pooled funds and pursue multiple
strategies to generate above-average returns for investors. Hedge funds invest in everything
that fund managers believe will generate the highest possible returns in the short term.
1. Alternative investments As mentioned earlier,
alternative investments top the assets rich people spend their money on.
They can be lucrative investments such as fine art, expensive musical instruments, or rare books.
Also, there are the ultra-rich that have investments in intellectual property rights
such as the rights to songs or movies. These can be very lucrative investments.
As you’ve figured out, the rich have many different investment philosophies,
so it’s difficult to generalize concerning where they keep their money. However,
all of the mentioned are legitimate investments for such individuals. Since they have a
desire for a reduction of their risk, many prefer diversified investment portfolios.
Remember, you can combine more than one of these investments to enhance your wealth.
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