Every year new millionaires are made, and the majority don't inherit their wealth. Typically America's millionaires don't let their money collect dust languishing in a savings account with its paltry interest rate.
Millionaires keep their money in a wide range of places – each with their own pros and cons.
In this article, we'll explore some of the most common places where millionaires choose to invest their wealth and weigh the benefits and drawbacks of each option.
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Key takeaways
- Millionaires often keep their money in a variety of places, depending on their financial goals and risk tolerance.
- Popular options include investment portfolios, trusts and foundations, real estate, precious metals, and even offshore bank accounts.
- Multi-millionaires keep their money in even more exotic places including private banks, private equity and venture capital investments, hedge funds, businesses and startups, agricultural land or timber rights, yachts and private jets, philanthropic donations, and life insurance policies with high cash value.
- Each option has its own set of benefits and drawbacks, and it's vital for individuals to carefully consider their options before making a decision.
Investment portfolios
A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange-traded funds (ETFs). A portfolio may contain a wide range of assets, including real estate, art, and private investments but more on that below.
Why millionaires like this option
- Investment portfolios offer high returns on investment and, if appropriately managed, will have low risk.
- They also provide diversification, which reduces the overall portfolio risk.
Drawbacks
- Investment portfolios can be complex and challenging to manage. Still, any millionaire will have a team of financial advisers at their fingertips to ensure that their portfolio wealth is being maximized.
- Any financial investment comes with market-related risks, which can be mitigated by spreading the investment load widely.
Trusts and foundations
A trust is a legal arrangement in which a trustee holds and manages assets on behalf of one or more beneficiaries. Most high-net-worth individuals contract to an inter vivos trust whereby they can dictate and oversee what goes into it. A foundation is a legal entity created to hold and manage assets for charitable or nonprofit purposes.
Why millionaires like this option
- Trusts and foundations offer asset protection, and inter vivos trusts do not have the price tag of estate duty attached.
- These trusts are formed to control the passage of wealth to future generations. They can also be used for philanthropic purposes.
Drawbacks
- Setting up and maintaining a trust or foundation can be complex and expensive.
- There may also be restrictions on how the assets in the trust or foundation can be used.
Precious metals
Precious metals, such as gold and silver, are often used as a store of value and a hedge against inflation.
Why millionaires like this option
- Precious metals have held value over time and can be a hedge against inflation.
- They can also be easily bought, stored, and sold.
Drawbacks
- The value of precious metals can be volatile and may not always perform well in the short term.
- Storing precious metals can also be expensive and may require additional security measures.
Real estate
Land banking, buying buildings, houses, apartments, and vacant land is a popular way for the wealthy to protect wealth and build it too. It's a recognized asset class, meaning banks will always lend against the value of the real estate. It's also a great fallback too – they'll always have somewhere to go.
Why millionaires like this option
- Real estate can be a stable, long-term investment that generates rental income and appreciates over time.
- It can also offer a tangible asset that can be used for personal or business purposes.
- Tax benefits and offsets.
- Recognized asset to lend against.
Drawbacks
- Real estate can be a significant investment and may require a large upfront capital outlay.
- It also comes with the responsibilities and costs of maintenance and property management.
These are just a few examples of the many options for millionaires to keep their money. It's important to note that where a millionaire invests their money depends on their financial goals and risk tolerance. It's always best to consult a financial advisor or professional before making investment decisions.
Offshore bank accounts
An offshore or overseas bank account is one that you have in a country you don't reside in. They allow you to make and receive payments, hold money, and set up savings and investment accounts in multiple currencies. These accounts are usually set up in tax-friendly jurisdictions, offering greater privacy and asset protection.
Why millionaires like this option
- Tax-friendly jurisdictions can offer significant savings on taxes for millionaires.
- Offshore accounts can also offer greater privacy and asset protection.
Drawbacks
- Offshore accounts can be challenging to set up and maintain, but every millionaire will have a financial advisor or accountant to take care of that.
- There are legal and regulatory considerations, as some countries have strict laws and penalties for individuals who fail to disclose offshore accounts.
Art
Works of art refer to paintings, sculptures, and other forms of artistic expression.
Why millionaires like this option
- Works of art can be a unique and valuable investment that can appreciate over time.
- They can also be a source of personal enjoyment and cultural enrichment.
- Investing in art can be a way for high-net-worth individuals to diversify their investment portfolios.
Drawbacks
- Investing in art can be difficult and requires significant knowledge and expertise, making it difficult for any investor to know what to look for.
- Works of art can also be challenging to value, and prices can be highly speculative.
- It can also be expensive to store and insure.
- Additionally, the art market can be vulnerable to fraud and forgery.
Farmland
Farmland refers to land used for agricultural production, such as growing crops or raising livestock.
Why millionaires like this option
- Farmland can provide a stable and long-term investment with the potential for appreciation in value over time.
- Investing in farmland can also provide a hedge against inflation and a source of rental income.
- It can also be a way for investors to gain exposure to the global food supply chain, which is seen as a growth industry.
Drawbacks
- Investing in farmland can require a significant amount of capital and may be illiquid.
- It also comes with responsibilities and costs of maintenance and management.
- Farmland values can be affected by weather, pests, and other environmental factors, which can be challenging to predict.
- Additionally, farmland can be affected by government regulations and policies, which can change over time.
Collectibles
Collectibles refer to items sought after and valued for their rarity, historical significance, or aesthetic appeal. Examples of collectibles include stamps, coins, sports memorabilia, and vintage cars.
Why millionaires like this option
- Collectibles can provide a unique and potentially profitable investment opportunity.
- Collectibles can also be a source of personal enjoyment and be passed down as heirlooms.
- Investing in collectibles can also be a way to diversify investment portfolios.
Drawbacks
- Investing in collectibles can require significant knowledge and expertise, making it difficult for an average investor to know what to look for.
- Prices for collectibles can be highly speculative and can fluctuate widely.
- It can also be expensive to store, insure and maintain.
- Additionally, the collectibles market can be vulnerable to fraud and forgery.
Wine and spirits
Wine and spirits refer to alcoholic beverages that are aged and stored for some time before consumption, typically to improve their flavor and quality.
Why millionaires like this option
- Wine and spirits can provide a unique and potentially profitable investment opportunity.
- Wine and spirits can also be a source of personal enjoyment and can be used for special occasions or as gifts.
- Investing in wine and spirits can also be a way to diversify investment portfolios.
Drawbacks
- Investing in wine and spirits can require significant knowledge and expertise, making it difficult for an average investor to know what to look for.
- Prices for wine and spirits can be highly speculative and can fluctuate widely.
- It can also be expensive to store, insure and maintain, especially if proper storage conditions are required.
- The wine and spirits market can also be vulnerable to fraud and forgery.
