I have been very fortunate to know multiple ultra-wealthy people, despite being born into a decidedly middle-class family. As a young person, the rich seemed far removed from my humble upbringings. Seeing their over-the-top lifestyles on TV, it appeared that all the wealthy did was spend money!
While this is true for some wealthy folks, it is generally the heirs of the wealth creators who spend like crazy.
If it is the first-generation wealthy spending, it’s primarily the use of interest earned on investments.
The wealthy who spend their core investment don’t stay wealthy for long!
The question has always been just how do the wealthy build and maintain incredible riches while the rest of the population struggles to make it from week to week?
I have observed five things that the wealthy do religiously with their investments that the average person does not do.
1. Everything Is A Business
The wealthy often view their possessions differently than the person of average means. Everything the wealthy purchase is thought of as a business or investment. High-profile purchases, such as yachts and aircraft, are not acquired frivolously by the ultra-rich.
It is always with an eye on chartering during the downtime to help recoup the cost. Homes, artwork, jewelry, wine, and even automobiles are bought with knowledge of resale and/or investment value.
Investments are made into businesses that not only are proven money makers, but it is generally something the owner enjoys. In other words, companies are often partially hobbies for the ultra-wealthy.
Next time you see a private jet or super-yacht, remember the owner likely thought about how the purchase can pay for itself.
2. Dollar Cost Average Index Invest
The U.S. stock market indexes have been monster wealth creators over the long term. Almost every super wealthy person owns investments that reflect the major U.S. indexes. These investments can be ETFs, portfolios of the major components of the indexes, mutual funds, and even futures.
While there are periods of negative returns in the indexes, they generally do not last long. The wealthy manage these periods by using an investment tactic known as dollar-cost averaging (DCA) when investing in stock indexes. DCA means consistent purchases of the investment over time regardless of the market price of the investment.
It enables you to take advantage of the down periods by purchasing more shares at the lower price.
While many investors buy the index, the wealthy do it consistently over the long term.
3. Do Not Short Stocks
Clearly there are exceptions to this rule, but on average, the ultra-wealthy are long stocks and the indexes. The reason for this is the fact that the stock market has an inherent upward bias. No other financial market can claim to have the same characteristic.
It is this upward price bias that makes shorting long term a game for fools. When the wealthy do short stocks, it is usually strictly with their risk capital which represents a tiny percentage of their net worth.
4. Diversify With Real Estate
Real estate is a mainstay in nearly every ultra-wealthy person’s portfolio. The real estate can be commercial, residential or even raw land but it all falls under the same umbrella. Taking your stock market profits to reinvest in real estate is a powerful way to mimic the investing tactics of the super-rich.
Depending on your situation the real estate is best used as a tax hedge, cash flow generation, and/or pure speculation on price appreciation.
5. Have Fun
There are few things sadder than a wealthy person who is paranoid about every dollar. I have met several folks fitting this description, and it’s a terrible way to live. In no way am I saying to spend your nest egg or what you earn rather than invest. I am suggesting to use a portion of your growing wealth on things that you enjoy.
One trick I learned from a wealthy heir was to have a spending deductible. This can be $100.00, $500.00, $1000.00, or whatever makes sense in your situation. What a spending deductible means is that you see something you want and it falls below your pre-set deductible, just buy it.
Whether this is an experience, product, or whatever, don’t fret over the purchase since it’s under the deductible.
Risks To Consider: There is not a one-size-fits-all of the investment styles of the super-rich. These are merely basic guidelines that I have observed over time. Just like everyone else, every wealthy person does things differently.
Action To Take: Consider implementing one or more of the above investment ideas of the super-rich into your wealth building program.
— David Goodboy
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Source: Street Authority