How rich people invest their money is a secret that many of you want to learn more about. First of all, how significantly can you increase your net worth by putting your money into the right investments? Secondly, how should you decide what to invest in?
One of the most common questions I am asked is, “Dan, what should I invest my money in?” This question is often posed to me by people who have saved up a good amount of money, but they need direction on what to invest in.
Rich people are good people to pose investing questions to, because the rich are always looking for something to invest in, so they know a lot about investing.
It’s a fair assumption that rich people know what to invest in. If someone is rich, it’s quite likely they are good at managing their money. A big part of good money management is smart investments.
When it comes to how rich people invest, there is a lot of mixed information out there. Many people are suggesting that you should invest money in the stock market, real estate, commodities, cryptocurrency, or mutual funds. The list goes on and on. You want to believe that if you listen to the advice of experts on how rich people invest, it will pay off.
You also want to believe if you take the advice of the wealthy, you will become wealthy yourself. After all, the rich are rich, so they must know how to multiply their wealth. So how do rich people invest their money?
What are some examples of high-return investments that truly pay off if you do it right?
Today I’m going to go over all of the above, including not only how rich people invest their money, but also some examples of what to invest in.
What you invest in depends on many factors: your net worth, how much money you’re willing to invest, personal preferences, your knowledge, what you have an understanding of, your strengths and weaknesses.
Watch this video on how rich people invest their money:
It’s important to note that a good investment for me might not be a good investment for you. Why? Because everyone has a different level of understanding in certain areas, and a different level of knowledge. Plus, we all have different preferences and passions. For example, not everyone is passionate about real estate. Let’s go over a few different ways you can decide what to invest in.
1. Invest in What You Understand
If you’re wondering how rich people invest their money, you should know that rich people invest in things they understand.
Warren Buffet famously said, “Never invest in a business you cannot understand.”
Warren Buffet and Bill Gates have a great relationship, but Buffett doesn’t invest in tech companies or technology stocks. Buffet is one of the smartest investors of all time, he only invests in what he understands.
I operate the same way, where I tend to invest in things I understand. For example, I do not invest in cryptocurrency. That’s not my area of expertise. I have friends who have made a lot of money investing in crypto, from five to twenty times their return of on investment. But they study cryptocurrency because they’re interested in it, and they fully understand how this space works.
I have never invested a single dime in cryptocurrency, even though I know it can work and I trust my friends that it worked for them. I just know it’s not for me. Ultimately, we are the ones who can best decide where to put our money because we are the best judge of what we know.
Most rich people invest in things they understand. Don’t invest in something unfamiliar to you just because you saw a hot tip, and you see other people making money. Don’t buy into the whole get-rich-quick or don’t-miss-out mentality. That’s the thinking of a very amateur investor.
If you feel confident that you understand what you want to invest in, develop a plan. I have a simple investment rule that I follow, which I will explain in the next tip.
Below: A brief snapshot of what Americans are investing in.
2. Follow This Simple Investment Rule
Rich people are always looking for investments, meaning we’re looking for deal flow. We always want to have deal flow coming to us from all kinds of sources. It could be from a broker, friends with a high net worth, or the internet.
I have a simple rule: 100, 10, 3, 1. It means you look at one hundred deals. One hundred potential investments. From there, you break it down into ten possibilities worth considering. From those ten, you will narrow it down to three options that have very good potential, and then you might finally narrow it down to one.
Every time an investment deal comes across my desk, I will probably turn it down. I turn down 99.9% of them. I look at hundreds and hundreds of investment opportunities, and I select a rare few of them.
If you’re buying stocks, don’t look at two stocks and buy one. You need to be looking at more options. Similarly, when it comes to real estate investing, don’t look at only three properties and purchase one. You must do your research. Always remember to investigate before you invest.
Don’t worry about missing the opportunity of a lifetime. When it comes to investments, there’s always another deal. Rich people are always looking for investments, so they look at many possibilities and then they narrow it down to the best choices. It’s a numbers game.
The ultra wealthy members of TIGER 21 (630 people with over $10 million to invest) had 75% of their holdings in public equity, private equity and real estate, with only 10% of their money held in cash last year.
According to a report, they are investing more in stocks, less in real estate, and 1% of their assets in miscellaneous. That percentage includes cryptocurrency, cyber-security and cannabis.That’s how they allocated their investments last year, meaning their choices may change the following year.
Their investments are based on what areas they have expertise in. There will always be deals and opportunities. No matter where you choose to allocate your money, using your head and not your heart to make the decisions will make a tremendous difference. I explain this further in the next tip.
3. Use Logic Rather Than Emotions
Amateur investors are very emotional. This means that emotions drive their investment decisions. For example, they will buy real estate property because they love the neighborhood. Perhaps even solely because the neighborhood makes them feel the emotion of nostalgia. Or they love the color of the carpet, or the relaxing view of the mountains.
When I make an investment, there’s hardly any emotion involved. I don’t care about the fact that the neighborhood reminds me of my childhood, or that view makes me feel at peace. What I care about are the numbers. Does it make sense to buy this property, financially and logically?
Amateur investors lose money on stocks because of their emotions, too. They get greedy and feel emotions of excitement when stock prices go up, and they don’t want to sell. They keep riding the winning stock. Then suddenly, it drops and they lose money. Then they wait for it to bounce back.
The prices might then drop some more. So they wait again. Logically, they should instead sell some shares when the stock has gone up a certain amount, enough to have a profit. If the stocks continue to rise, that will be the gravy. But if it drops, you accept the loss and sell. They should be using logic, instead of riding emotions of greed and excitement.
If you want to know how rich people invest their money, it’s important to know that they make decisions about their investments using logic.
4. Investing in Real Estate
Done right, real estate is a great investment, in my opinion. I personally love investing in real estate, because I find that it’s generally quite predictable, controllable and stable. Plus, I understand real estate.
Real estate is what is referred to as a hard asset. It is an investment that has the potential to perform well even when the financial markets are fluctuating. However, you should build your business first, and invest in your business first. Before you invest in real estate, build your scalable business.
Once you’re at a point where you have tons of cash coming in from your business and you have a high net worth, that’s a good time to invest in real estate. If the cost of the property is 20% of your net worth, you’re in a good position to buy.
However, when it comes to investing in real estate, it’s crucial that you take the time to do your due diligence. If you don’t understand real estate, or if you haven’t done your research or don’t know where to start, that’s another sign you’re not ready. Instead, begin by investing in your business and investing in yourself.
5. Investing in Yourself
If you don’t have quite enough money to invest in real estate or other high-return investments yet, that means you should invest in yourself. By investing in yourself – by acquiring a new high-income skill, for example – you can earn enough money to invest in the things rich people invest in.
If you’re not a sophisticated investor, upgrade your skills and improve your training. Your knowledge is something no one can take from you, and furthering your education and skills will always pay off.
Benjamin Franklin is known for saying, “An investment in knowledge pays the best interest.”
How can you invest in yourself? Read more books, go to educational seminars or events, or hire a coach. Take a new course to learn a new skill.
Investing in yourself is the greatest investment with the greatest return. I constantly invest in myself and upgrade my skills. When it comes to investing in myself, I never stop and I never worry about the cost.
Just as someone who desperately wants to lose weight doesn’t care about the cost of a personal trainer, someone who wants to be successful doesn’t care about the cost of gaining more knowledge.
Further Insight into How Rich People Invest Their Money
You’re the best person to decide what to invest in, because you want to invest in what you understand. You also know best if you’re ready for a big investment or not. Even the mega-wealthy look for as many opportunities as possible, so they can do their research and then invest in what they understand.
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When you’re making decisions about your investments, use logic, not emotion, otherwise it’s too easy to make unwise choices. And finally, if you’re not sure what to invest in, then invest in yourself. Even at my level of success, I will never stop investing in myself. How do you think I became so successful in the first place? I spared no expense invested in myself.
If you want to know how the rich think, invest, and handle their money, take the first step by investing in yourself now.