3 Surprising Ways the Ultra-Wealthy Invest Their Money | The Motley Fool (2024)

The super-rich invest in stocks and real estate, as many people do. But here are three of their investment choices you might be less familiar with.

How much money does it take to be wealthy? A Charles Schwab survey conducted last year found that Americans think a net worth of $2.2 million is required. But that's only a fraction of the $30 million needed to have an ultra-high net worth.

As you might imagine, the super-rich spend their money in different ways than the average American. They also invest differently. Here are three perhaps surprising ways the ultra-wealthy invest their money.

1. Private equity

The super-rich put plenty of money in stocks just as many Americans do. However, alternative investments comprise roughly 50% of assets owned by the ultra-wealthy compared to only 5% for the average investor. What's the top alternative investment? Private equity.

Publicly traded companies list their shares on stock exchanges such as the New York Stock Exchange and Nasdaq. Anyone can invest in them. Investing in private equity, on the other hand, is only available to institutional investors and accredited investors who have an annual income of at least $200,000 for two consecutive years and/or a net worth of $1 million or more excluding their primary residence. Holding a Series 7, Series 65, or Series 82 license also qualifies a person as an accredited investor.

Among high-net-worth families, 27% of their portfolios are invested in private equity, according to a survey from investing firm KKR. This percentage narrowly trails the 31% allocation these investors have in listed equities.

Private equity is the only alternative investment that has regularly outperformed the S&P 500 index. However, there have been periods when the S&P 500 beat private equity.

3 Surprising Ways the Ultra-Wealthy Invest Their Money | The Motley Fool (2)

^PEA data by YCharts

Private equity continues to build momentum as an investing choice. A whopping 79% of institutional investors plan to increase or significantly increase their asset allocation in private equity by 2025, according to a survey conducted by alternative investment firm Prequin.

2. Private credit

Around 4% of high-net-worth families' portfolios are invested in private credit, according to the KKR survey. What is private credit? It's where investors loan money to private companies. In return, they receive interest payments and (hopefully) receive all of their investment back over time.

Private credit is often less risky than private equity. That's because debt holders receive priority if a company files for bankruptcy. However, private credit isn't a risk-free investment. There's still a possibility of a big loss.

Like private equity, private credit is gaining popularity. Prequin found that 67% of institutional investors plan to increase or significantly increase their allocations to private debt (a broader category that includes private credit) by 2025.

3. Luxury goods

Some ultra-wealthy individuals also invest in luxury goods. These goods include designer handbags, fine wines, classic cars, watches, jewelry, and more.

Are luxury goods a good investment? Yes and no. Over the 10 years ending on Dec. 31, 2022, the Knight Frank Luxury Investment Index soared 137%. However, during this period the S&P 500 delivered a total return of nearly 237%. Some types of luxury goods have beaten the stock market, though. For example, rare whisky prices skyrocketed 373% higher.

There are some good reasons why luxury goods typically don't make up a large percentage of ultra-wealthy individuals' portfolios, though. They tend to be illiquid. Some luxury goods require steep costs for maintenance. The market for luxury goods is also largely unregulated, which increases the risks for investors.

A better alternative

Investors who aren't worth $30 million or more don't need to fret that they aren't investing like the super-rich. As previously mentioned, most alternative investments don't perform as well as the S&P 500 over the long run.

Warren Buffett -- a longtime member of the ultra-high-net-worth club -- stipulates in his will that most of the cash inherited by his family be invested in low-cost . For most investors, regardless of how much money they have, Buffett's choice is a better alternative than any alternative investment.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Charles Schwab and KKR. The Motley Fool recommends Nasdaq and recommends the following options: short March 2024 $65 puts on Charles Schwab. The Motley Fool has a disclosure policy.

3 Surprising Ways the Ultra-Wealthy Invest Their Money | The Motley Fool (2024)


3 Surprising Ways the Ultra-Wealthy Invest Their Money | The Motley Fool? ›

Investing in private equity is a great choice for HNWIs. Private equity firms own stakes in companies that aren't publicly traded. They also buy troubled public companies, take them private and restructure them.

How do ultra high net worths invest? ›

Investing in private equity is a great choice for HNWIs. Private equity firms own stakes in companies that aren't publicly traded. They also buy troubled public companies, take them private and restructure them.

Where do high net worth individuals keep their money? ›

High net worth individuals put money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate. Most of the 20.27 million millionaires in the U.S. did not inherit their money; only about 20% inherited their money.

What are two strategies the rich use to invest? ›

Taylor Kovar, CFP, founder and CEO at 11 Financial, noted that wealthy individuals often use strategic investment strategies including diversification, asset allocation and long-term investing, as they understand the importance of spreading their investments across various asset classes to manage risk while seeking ...

What are the alternative investments for ultra high net worth? ›

These include hedge funds, commodities, and derivatives, which provide exposure to the stock market but with different risk-return profiles than traditional stock investments.

What stocks do billionaires buy? ›

Along with Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL), and Amazon.com, Inc. (NASDAQ:AMZN), Cisco Systems, Inc. (NASDAQ:CSCO) is a top A-rated stock that billionaires are buying.

What trust to use for ultra high net worth? ›

A living trust allows you to transfer ownership of your assets upon your death while retaining control over them during your life. The trust is a document specifying how the assets will be managed and distributed. This document can include detailed instructions on when and how beneficiaries receive their inheritances.

What bank do most millionaires use? ›

The Most Popular Banks for Millionaires
  1. JP Morgan Private Bank. “J.P. Morgan Private Bank is known for its investment services, which makes them a great option for those with millionaire status,” Kullberg said. ...
  2. Bank of America Private Bank. ...
  3. Citi Private Bank. ...
  4. Chase Private Client.
Jan 29, 2024

What are the three things millionaires do not do? ›

Millionaires prioritize avoiding consumer debt, making wise financial decisions, and aligning spending with long-term goals.

Where do millionaires keep their money if banks only insure $250k? ›

Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds.

What do billionaires invest in the most? ›

How the Ultra-Wealthy Invest
RankAssetAverage Proportion of Total Wealth
1Primary and Secondary Homes32%
3Commercial Property14%
7 more rows
Oct 30, 2023

How do the rich use credit cards? ›

If a wealthy American must make a large purchase like a new car or a piece of expensive equipment, they may use their credit card to pay for it and then pay off the balance over time, rather than having to pay for it all upfront. This allows them to have more cash to finance investments or other opportunities.

What is the 3 way investment strategy? ›

Three-fund portfolios are designed to provide a comprehensive approach to diversification since they include both domestic and international stocks as well as bonds. The goal is to choose funds that represent the market as a whole.

How do the ultra rich invest their money? ›

Investing Only in Intangible Assets

Ultra-wealthy individuals invest in such assets as private and commercial real estate, land, gold, and even artwork. Real estate continues to be a popular asset class in their portfolios to balance out the volatility of stocks.

What net worth is considered extremely wealthy? ›

According to Schwab's 2023 Modern Wealth Survey, Americans perceive an average net worth of $2.2 million as wealthy​​​​. Knight Frank's research indicates that a net worth of $4.4 million is required to be in the top 1% in America, a figure much higher than in countries like Japan, the U.K. and Australia​​.

What is the average ultra-high-net-worth? ›

A secondary level, a very-high-net-worth individual (VHNWI), references an individual with a net worth of at least US$5 million. An ultra-high-net-worth individual (UHNWI) holds at least US$30 million in investable assets (adjusted for inflation).

What do HNWI invest in? ›

HNWIs can invest in hedge funds, which are generally open only to accredited investors who meet certain criteria, including a minimum net worth. HNWIs may also invest in private equity (PE) and venture capital (VC) funds, which are not available to the general public.

Where do ultra rich invest? ›

How the Ultra-Wealthy Invest
RankAssetAverage Proportion of Total Wealth
3Commercial Property14%
5Private Equity / Venture Capital6%
7 more rows
Oct 30, 2023

What do ultra-high net worth clients want? ›

Ultimately, high net worth clients want to feel important to you, knowing that you go above and beyond the call of duty for them. They want to feel protected and cared for exclusively, and to have confidence that they and their family are in the best hands possible.

How do you target ultra-high-net-worth individuals? ›

7 Strategies for Attracting High-Net-Worth Clients
  1. Choose Your Area of Expertise. High-net-worth investors have diverse needs and concerns. ...
  2. Define Your Message. ...
  3. Focus Your Marketing Efforts. ...
  4. Improve Your Referral Strategy. ...
  5. Ensure High Net Worth Clients Can Locate You Easily. ...
  6. Understand how clients invest. ...
  7. Network.
Oct 2, 2023


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