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What do the wealthy invest in? February 18, 2008

Posted by shaferfinancial in Uncategorized.
Tags: , , , , ,

The title to this post is a little off in that most times people invest in things in order to get wealthy.  Either way you look at it, there is much research on this subject.  Funny thing, it is not primarily mutual funds or even individual stocks that make up the portfolios of the wealthy.

First, lets define wealthy.  There are three generally agreed upon categories.  The mass affluent which has a net worth outside of their primary home of $100,000- $999,999.  The wealthy which has a net worth outside of their primary home of $1,000,000- $9,999,999.  And the super wealthy which has a net worth outside of their primary home above $10,000,000.

Interestingly, the investment strategy is basically the same between the wealthy and the super wealthy. And the higher you go in net worth for the mass affluent the more they look like the other two classes.

So how do they invest?  What financial instruments do they use?  Well, the truth is they use all sorts of financial instruments, but there are two main strategies which set them apart from those that have less than them.

First, is real estate.  The largest categories of investments for the wealthy are real estate and it only gets larger as you go up the wealth ladder.  Of course they all own a primary home.  But a second home is the next largest category of real estate investment.  And as you go up the scale they own 3,4 or more homes.  Next category is income producing real estate.  The wealthy own apartment buildings, commercial buildings, duplexes, etc. that will produce income for multiple generations.  REIT’s (real estate investment trusts) are favored by the wealthy. Raw land is bought and sat on until the investment blooms.

The next largest category is businesses. Usually they control or own large blocks of a business that can be best called creative or niche businesses.  The wealthy have been able to identify unique ways to satisfy needs.  Many times the discovery has come out of a industry that they worked in for years, first as a employee.

They also own some of the traditional investment classes like stocks, bonds, mutual funds.  However, it is at much smaller percentages than the non-wealthy.  For example, the super wealthy own individual stock and mutual funds, but the median ownership is around $1,000,000 for individual stocks and $500,000 for mutual funds.  Now remember, the super wealthy category starts at $10,000,000.  So their stock ownership percentage is very small compared to their overall assets.  They own cash value life insurance at about the same percentages as their stock ownership.

Their overall strategies suggest an understanding of the tax laws, so that they legally avoid high outlays to government.  It also tells us they understand history.  The greatest investments, those that last for generations until someone forgets why they were purcashed in the first place, are income producing real estate.  Imagine if your great grandfather purchased apartment buildings in Manhattan or Miami Beach or Chicago.  What would they be worth now?  How much income might they be producing for you?  The truth is, businesses come and go and our needs change, but we always need a place to live or a place to shop.

Maybe you are not the landlord type, like me.  The thought of having  renters calling me all hours of the day and night to have the plumbing fixed is my nightmare.  But there are many ways to own real estate that don’t have that nightmare.

Think about starting a business that fills a niche.  Think about investing in real estate.  If you can find success in these two areas, then you are likely to join the wealthy or even the super wealthy!


1. mumbaikar - February 19, 2008

India market has benn doing great. I know there was a blip recently, but the trend and the story is great.

2. shaferfinancial - February 19, 2008

Folks this is the type of thinking that has created much wealth for wall street and little for the individual investor. India may be a great place to invest, but unless you are an expert on India Businesses you must take someone else’s word for it. I mean does anyone really know about the various laws; accounting, corporate, etc. in India? Bottom line is the facts discussed in my post point the individual investor in a different direction than taking someone else’s word on investing. Just ask all the folks that invested in start-ups and tech’s pre 2001! NASDAQ is still only half what it was in 2000!

3. Foreclosure Assistance - February 28, 2008

Well unfortunately I own rentals and they are also of the single family type. Commercial is the way to go so someone else will answer the phone to fix it. Far from superwealthy here. Nice article

4. shaferfinancial - March 3, 2008

Yes, that has kept me from investing in single family homes when I find one that makes sense financially. Don’t need those phone calls!

5. Sexy Shoes - March 6, 2008

Very good and helpful post.
I add your interesting blog in my Google Reader! 😉

6. Who should you behave like; the middle class or the wealthy? « Uncommon Financial Wisdom - October 14, 2008

[…] posted on how the wealthy really invest here.  Quickly summarized it is real estate, niche businesses, individual stocks and cash value life […]

7. suitSoilt - April 24, 2009

emm. bookmarked 🙂

8. Ivania Sevilla - November 27, 2009

Dr Shaffer:

This article is brilliant, but how to start in a broken state like California, with no job? I just put my hopes in college, although I had my master degree twelve years ago and had a job for the last 9 years. How to start with little in this changing economy ?



shaferfinancial - November 29, 2009

They say the surest way to any destination is to start one step at a time. If you need income, then you need to get a job, any job. If you can’t find a job, then move to an area where jobs are more plentiful. Then you need to start spending less than you are making. Once you have those two concepts down, you can move on to the next part of your journey. Good luck, hopefully you will continue to comment at my blog going forward.

9. Jed Dahl - February 1, 2010


What are your sources for this information? I don’t doubt your conclusions, I just want to analyze the data first hand and do my own research analysis on that information.


10. shaferfinancial - February 1, 2010


The US census issues reports periodically that outline wealth. The Reserve Board issues a report every 3 years. A great book is “Get Rich, Stay Rich, Pass it On” which details the authors own research. Each of these three places should lead you to further details and more information.

11. Nik - March 21, 2010

Art as an Asset

There are grounds to believe that in our society there are enough people who want to invest towards improving the quality of life and gaining assets, which are enriching and ennobling. Art round the globe attract attention of those who wish to bring aesthetic dimensions to their living and also to those who would wish to invest in art because its value continues to rise impressively. Increasingly there are more and more people in the world who find art ennobling and uplifting and who treat it as abiding and visible wealth.

Art is a form of Asset which doesn’t fluctuate like an equity but the one that matures like an old wine. Researches have shown that art has outperformed equity indices over a period of time. Most of the people from the market presume that art could be a slice of cake only for wealthy people. One thing to be noticed that yes its the wealthy people who are seen going out to buy the art. People who put in money in art are not dumb people; they are shrewd businessmen who understand this market and its economics and then expose a part of their wealth to art market. It is a form of asset which creates aesthetic and economic value over a period of time and not immediately.

Art was an area of least rejoinder and there was a gap prevalent in the Art Industry between the intended collectors and the allied fraternity due to the lack of connectivity, awareness and the incorrect positioning of Art (especially in case of Indian and South East Asian Art) in the global market has left it to be grossly UNDERVALUED.

12. Ifeanyi - July 23, 2010

Excellent article–looking forward to more, thank you! =)

13. Trina Olde - August 24, 2016

You have got incredible stuff here.|

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