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TEMPO.CO, Jakarta - The world is currently home to approximately 58 million millionaires, according to Al Jazeera. Given the figure, people then begin to ask, “Where do rich people keep their money?”
While it’s widely known that the wealthy have mastered the art of wealth management, strategically diversifying their assets across various channels, the specifics remain a point of intrigue.
Citing Nomad Capitalist and Yahoo! Finance, this article uncovers the top seven investment strategies used by the rich to build and maintain their fortunes.
Cash and Cash Equivalents
Despite the presence of a wide range of investment channels, millionaires still keep nearly 25% of their wealth in cash and cash equivalents. Some even denominate their cash in multiple currencies to facilitate easier access to the international market.
Millionaire banks are significantly distinct from those of the average person. They have both savings and checking accounts, all managed by a private banker who is also managing their overall wealth.
As for the cash equivalents, it is also an attractive form of investment due to its similar liquidity to cash. These include money market funds and treasury bills—all provide quick access to funds when opportunities arise.
Real Estate
When you ask, “Why do rich people invest in real estate?” The answer is only one—it’s one of the most promising long-term investments. Over time, the value of this asset generally increases, offering an excellent profit upon sale. Beyond that, its passive income potential is also a key motivator for wealthy individuals to invest in real estate.
Most millionaires start their real estate portfolio by purchasing a primary home and then gradually expand to residential properties. Eventually, they venture into commercial real estate, including office buildings, hotels, and stadiums.
Once they become familiar with the real estate market, agents will start to approach them with deals, making investments easier to secure.
Private Equity and Hedge Funds
For ultra-wealthy individuals, investing in private equity and hedge funds is no stranger. These investments provide opportunities to invest in private companies or engage in sophisticated trading strategies, all while offering liquidity.
To invest in private equity, an individual typically needs a minimum net worth of at least $250,000 to qualify as an accredited investor.
Hedge funds, while distinct from private equity, pool funds from multiple investors and follow diverse strategies to generate returns.
Stocks and Stock Funds
Dividend-paying stocks are the cornerstone of wealth-building for many affluent individuals. Not only do they have minimal fees, but these channels also present passive income potential. Some millionaires often control shares in one or more major companies, but most of them tend to hold a relatively small number of equities.
To streamline the management of their investments, many wealthy individuals rely on financial advisors to help guide their decisions and keep them on track.
Commodities
Commodities such as gold, silver, oil, and agricultural products are another asset class used by some wealthy to store value. However, many decided to avoid this vehicle due to its complexity, storage requirements, and subject to market volatility.
Cryptocurrency
Over the past few years, cryptocurrency, like Bitcoin and Ethereum, has become an increasingly popular investment choice for the rich. According to Investopedia, there are approximately 85,400 Bitcoin millionaires as of August 2024.
Although volatile and risky, cryptocurrencies offer high growth potential, which makes them appealing to those looking for significant returns in a relatively short time frame.
For those considering 2025 investments, it's essential to examine whether you should invest in Bitcoin.
Alternative investments
Alternative investments include art, collectibles, venture capital, and other non-traditional assets that the wealthy use to diversify their portfolios. These assets are often illiquid but can offer significant returns or long-term value, making them an attractive option for high-net-worth individuals seeking to grow their wealth in unconventional ways.
Generally, the wealthy don’t just rely on one type of investment to grow their fortune; they diversify across a range of asset classes to balance risk and reward. By adopting similar strategies, you too can begin thinking like the wealthy and set yourself on the path to financial success.
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