Millionaires and their upscale cousins, the Super Rich, aren’t very different than the rest of us. They don’t have access to secret knowledge that got them rich or keeps them rolling in dough. The fact, anyone can invest like the super rich, whether you’re just starting out or have been in the game for a while. Take a look at the basic investment strategies the rich are using, and how these methods have laid the foundation for a solid financial life.
What are the rich doing, that you’re not?
1. Self-made savers
When wealth managers talk about the super rich, they are talking about individuals with a net worth of more than $20 million. Self-made millionaires and super rich all have one thing in common. They started accumulating wealth early.
Billionaire Warren Buffett talks about starting his first profit-making enterprise when he was seven. He would buy six-packs of Coke for a quarter and sell the individual cans for a nickel, earning a tidy 5-cent profit on his investment. Buffett, tells people that his uber wealth began when he saved and then reinvested his soda business earnings.
Since you’re reading this article, there is a good chance you are more than seven years old. So you can’t get as early a start on building a fortune as Warren Buffett, but that shouldn’t stop you. More important than starting young, is just starting.
According to a survey by PNC Financial, 56 percent of rich people still save regularly even though they don’t have to.
Tip: Try to save at least 10 percent of your annual salary, and learn how compound interest works.
2. A matter of attitude
The biggest difference between the super rich and the rest of us, is the attitude. The super rich never let their money sit idle. This includes the money that is referred to as cash in reports about the mix of investments of the ultra wealthy.
Cash reserves are money that is in short-term investments, like Treasury Bills. They buy them with different maturity dates so that there is always some maturing at any given time. Their strategy is simple — even money I will be spending tomorrow should be earning money for me today.
The super rich don’t let an opportunity to make more money pass them by, especially if it involves free money. The ultra rich regularly use other people’s money to make money for them by making investments with borrowed money.
A simple example is borrowing $100 at 3 percent interest investing it and earning $110. Then pay back the $103, interest and principal and keep the $7 for free.
3. Free money is everywhere
Most people have access to free money, we just find excuses not to take advantage of it.
Consider your company’s 401(k). If your employer offers to match your contribution up to a certain amount, that’s free money.
If you were super rich, you wouldn’t hesitate to make sure you got every penny you could. After all, it’s free!
Copycat Tip: Like the super rich, you should always max out free money opportunities, even if it means making a sacrifice.
4. Beware of eggs and baskets
There’s a simple reason the super rich don’t panic when the stock market tanks or a real estate bubble bursts. It’s called diversification. The super rich never, ever, ever put all their eggs in one basket. No matter how sturdy and attractive that basket appears to be.
The “average” super rich person will have about a quarter of their money in stocks, a fifth in real estate, and a quarter in bonds. The rest will be in things as diverse as collectibles and dividend paying investments.
Avoid the temptation to not develop and stick with a plan of saving and investing that works for you, because you can’t emulate the typical rich guy’s investment portfolio.
If you can’t afford to buy commercial real estate, look for alternatives that are within your budget. You might consider shares of a REIT (real estate investment trust) that develops shopping centers.
If your calls to a hedge fund manager are going unanswered, consider ETFs instead. Some ETFs are leveraged (use credit) more than others and deliver the higher returns that come from investing with other people’s money. Just remember the greater the reward, the greater the risk.
The bottom line is the super rich aren’t any smarter than the rest of us; they aren’t luckier or more talented. What they are is consistent when it comes to saving and investing and paying attention to where their money goes.