Billionaires have been able to not only acquire wealth, but most have gradually built it over time. This means that many have had successful investments, which makes it natural for everyone else to wonder where they are investing or storing their money to see that growth. We’ve compiled a list of some of the most common investments billionaires make when looking for sustained growth in their money over time.
Keep in mind, however, that billionaires typically don’t manage their own money and instead choose to work with a financial advisor to help them with asset allocation.
1. Cash and cash equivalents
Cash and cash equivalents are common places where billionaires keep some of their cash. While not often considered an investment, cash is a liquid good, which means you can use it in a variety of ways when needs or wants arise. In a crisis, having cash on hand gives you the flexibility to respond. That’s why billionaires keep a significant portion of their money in cash and cash equivalents.
However, with the current inflation rates, money has less emphasis. Inflation causes the value of money to decrease, so having too much of it on hand during an inflationary period can mean significant losses.
Commodities are often another piece of a billionaire’s portfolio, and having such assets can help hedge against risk, inflation and volatility. For example, in a scenario where inflation is causing difficulties for the rest of the market, having investments in commodities whose price is rising can help protect you if other parts of your portfolio are suffering. People and economies depend on commodities, and inflation makes them worth more.
Commodities and agricultural products – such as precious metals, industrial metals such as copper, oil and natural gas, coffee, corn, pork belly and soybeans – are popular types of commodities held and traded by billionaires or their agents.
3. Foreign currencies
Holding foreign currencies gives billionaires the potential to capitalize on fluctuations in value in various currencies. It’s simply a form of diversification: instead of having all of their assets denominated in one currency, they spread some of their wealth into assets denominated in other currencies. This offers protection against one currency falling and capital appreciation if another currency they have assets in gains in value.
Another common place billionaires keep their money is in stocks. Securities are investments and financial instruments with a certain value that can be traded, often on public markets. Common types of securities include bonds, stocks, and funds (mortgages and exchange-traded).
Funds and stocks are the bread and butter of investment portfolios. Billionaires use these investments to make sure their money grows steadily. Billionaires typically hold onto these investments, instead of trying to time the market for a quick buck. This means that they rely on the long-term upward growth of the market to make a return.
5. Private Equity and Hedge Funds
Private equity and speculative funds sit next to stocks and trading markets. While not the same thing, these two types of investment tools are popular with billionaires. They appeal to high net worth individuals who can afford large investments and higher risks. These people are sometimes classified as sophisticated investors or accredited investors.
Hedge funds use large cash reserves and strategic investments in a variety of assets to generate high returns. Private assets, on the other hand, trades in private companies with the aim of running the business for greater profits. Both require a significant amount of money to participate in, preventing them from being an option for many investors.
6. Real Estate
It should come as no surprise that one place billionaires keep their money is in real estate. One of the most common ways to invest in real estate without worrying about constant maintenance is to invest your money in real estate investment trusts (REITs). This can provide you with a strong return while someone else handles the investment and physical property management.
Commercial, industrial and residential property investments can also offer a steady stream of income from tenants. Sure, owning a property is great when its value goes up, but what about other reasons? Another benefit of owning real estate is taxes. For example, if your property depreciates, it is tax deductible.
When billionaires look for places beyond traditional investments to keep their money, they might turn to tangible, collectible investments. These often include expensive collectibles, such as classic cars, fine Arts and rare or antique musical instruments and original manuscripts of famous books. While all successful investments require research, it’s especially true for collectibles. The investor needs both an interest in objects, but also a keen eye and the ability not to be immediately emotionally invested.
Cryptocurrencies – such as Bitcoin, Dogecoin and Ethereum – are volatile and intimidating for many, including billionaires, but some billionaires have chosen to invest in them. The truth is, digital currencies are growing in legitimacy and value. Cryptocurrency — and the blockchain it’s built on — is a game-changing technology that could change many industries.
Part of the allure of cryptocurrencies for billionaires is that it allows for a secure store of value. Because of encryption, money cannot be taxed, stolen or confiscated. It is also apolitical and free from government oversight. Also, it can be used globally without worrying about changing exchange rates.
Of course, cryptocurrencies are still unpredictable and have yet to gain widespread use. This prevents some billionaires from investing, but others see cryptocurrencies as another opportunity to grow their wealth, or at least protect it from taxation. These currencies also facilitate the transfer of money or paying for things in other countries.
The bottom line
You may not be a billionaire, but you can still see how they make their money work for them. By learning where billionaires keep their money, you can pursue some of these types of investments yourself to grow your wealth. Cash stored in savings and investments in a diversified portfolio of stocks and commodities is a good place to start, but the more wealth you acquire, the more you can invest in more aggressive opportunities.
Tips for investing like a billionaire
Billionaires didn’t get rich without help, so there’s no reason why you should struggle alone. You can work with an experienced financial advisor to help you create a financial plan and properly allocate your resources. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.
If you’re ready to learn more about your investments, one step you can take is to calculate your rate of return. Find out how the growth of your investments over time will affect the return you see. Check out the SmartAsset Investment Calculator to get started.
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