Although we’re not in the same boat, there are ways to copy what the wealthy do with their money to see good returns. Particularly in times of inflation, we’re all impacted. The primary concern is to hold on to and preserve assets.
We can presume that rich people have better investment opportunities because they have more money. However, there are other factors at play that help them make sound investments. They can get expert advice or have been investing for longer and know which signs to look for and when to move.
Let’s explore what motivates them and where they put their money.
Why Rich People Invest
Money in a bank account is fantastic for spending, but there’s so much more you can do. One of the privileges of having some spare cash is using it to make more money. When you don’t need to access it to pay for essentials or even luxuries, you can use it to create passive income.
Investments also mean that your money doesn’t sit there as cash. In that form, it’s susceptible to inflation and can decrease in value. Once you use it to hold other assets, you can see your wealth grow even if a dollar isn’t worth what it once was.
In that way, many rich people invest in protecting their wealth. They hold investments in different assets so that economic and political changes don’t diminish what they have. Plus, ideally, their carefully chosen assets will increase their net worth.
Types of Investments That Rich People Prefer
Plenty of options exist as alternatives to letting money sit in the bank. We’re going to take a look at some of the most popular ones. In each case, a person might choose one or more of these as investments.
Their decisions will work in a similar way to everyday investors. They’ll consider their budget, opportunities, their knowledge, circumstances, and the market.
For example, when the market is unstable, tangible assets, such as gold, become more appealing than intangible ones, like shares. As inflation rises, people seek out gold to hedge against losses, but also to diversify their portfolios and spread the risk.
One of the original and most-favored ways of investing, real estate continues to be a popular physical asset to hold. It starts with owning your own home so that rent or mortgages aren’t part of your expenses.
It can scale up from there to a long-term investment opportunity by owning a second property to rent for a relatively passive income. The next stage is multiple properties, which bring in rent, can act as holiday homes, or can turn a profit through commercial real estate. Hotels, restaurants and office buildings are particularly popular.
Wealthy individuals that are known real estate investors have agents bringing properties to them and can easily get other investors on board for even bigger projects. They can find properties for good prices, pay a team to renovate them and make a profit as short-term investments.
Those with a business mind often use their wealth for private equity. They use their money and expertise to provide capital and open doors for startups or small companies. In return, they get a share of the company and its profits. Venture capitalists only invest in businesses that have high growth potential.
Investing in businesses comes in many forms. Some wealthy individuals acquire whole companies or franchises or act as entrepreneurs and set up their own ventures. If there’s money to be made in a niche or sector, then using your money for a business makes more sense than letting cash depreciate in the bank.
Wealthy people often invest in gold or other precious metals. It’s a long-term investment that provides several advantages. As a limited commodity, global demands set the price of gold. Since most of it has already been mined, it’s likely that its value will continue to rise fairly steadily.
In the past two decades, the price of gold has seen a nine-fold increase. From around $200 in 1992 to over $1,900 per oz today, there’s a sound long-term return to be had. It’s also seen as a stable physical asset. When inflation rises and stocks deliver poor returns, gold holds or increases its value, as people trust in this timeless currency.
Another asset that typically remains immune to economic turbulence is art. This physical asset also holds its value in uncertain times. Like gold, it’s an ideal way to diversify a portfolio. It lacks liquidity, which is why it’s usually wealthy investors that have the luxury of using it as a long-term investment.
The global art market has an estimated value of $65.1 billion and growth is expected. Unlike precious metals, art is more like real estate and stocks; you need to know what to buy and how much to invest to see a decent return.
Investing in an emerging sector is a popular option for wealthy individuals. One such area is alternative energy. However, instead of risking it all or paying a lot for stocks from one company, an ETF (exchange-traded fund) is a less risky option. You still get exposure but with a broader approach.
Stocks make up part of most rich people’s portfolios. Whether it’s equity in a growing business, shares in a REIT (Real Estate Investment Trust) or stock in platform companies, these investments are perceived as risky but worthwhile. If the market is volatile, it’s particularly important to diversify to keep good returns and balance out the losses.
Another route to protection against inflation is cryptocurrency. Many wealthy investors are choosing Bitcoin, Ethereum and crypto funds to hedge their losses. Coins that have a limited supply are the most popular, and finance apps and crypto services are making it easier than ever to invest.
Spend Money To Make Money
Rich people invest to protect and grow their wealth. Inflation is one of the biggest threats, which is why wealthy individuals seek out ways to hedge against losses, such as gold, art, and cryptocurrencies.