investing

3 Ways to Invest Like a Millionaire

No matter the size of your portfolio, you can learn valuable lessons by studying the investing habits of the rich.

Most millionaires aren't born rich. During his three decades researching the wealthy, Thomas J. Stanley, co-author of "The Millionaire Next Door," consistently found that between 80% and 85% of all millionaires are self-made. Some earned their fortunes through hard work; others, by saving aggressively. Many amassed wealth by investing wisely.

Indeed, a study by Spectrem Group, a research firm that focuses on wealthy investors, found that millionaires devote more than half (55%) of their assets to liquid investments. The remaining assets are tied up in principal residences (16%), defined contribution retirement plans such as 401(k)s (12%), insurance and annuities (8%), investment real estate (6%) and privately held businesses (2%).

Understanding where the rich like to put the 55% that makes up their investable assets can be enlightening to investors of lesser means. And while there's no guarantee that adopting some of the investing habits of millionaires will turn you into one, it certainly can't hurt. Check out three of the ways to invest like a millionaire to see if any or all might be right for you.

Favor stocks over bonds

Millionaires invest 44% of their investable assets in stocks, according to Spectrem, with a strong preference for U.S. stocks over foreign stocks. When they do venture abroad, it's usually to buy shares of European companies. Bonds account for just 15% of investable assets, with short-term investments (interest-bearing accounts and such) making up another 15%. The balance of stocks and bonds an investor holds is a personal choice. It depends on age, goals and appetite for risk. That said, historically stocks have outperformed bonds. From 2007 to 2016, Standard & Poor's 500-stock index delivered an average annual total return of 8.7%, according to Aswath Damodaran of New York University's Stern School of Business. The bond benchmark of 10-year Treasury notes returned an average of 5% a year.

Buy tech and health-care stocks

When private investing club Tiger 21 surveyed its members in 2016, it found that millionaires think technology and health care are the two most promising sectors for investors over the next three years. (At least $10 million in investable assets are required to gain admission to Tiger 21.) So far, so good. Both sectors are outperforming the S&P 500 in 2017. Looking ahead, health-care and pharmaceutical stocks do have powerful demographic tailwinds thanks to aging baby boomers. As for technology stocks, big names including Amazon.com (symbol AMZN), Apple (AAPL) and Google-parent Alphabet (GOOGL) all look like good long-term bets.

Be selective about investing advice

Spectrem found that just 24% of millionaires consider themselves "very knowledgeable" about investment, while 59% admit they "still have a great deal to learn." That might explain why two-thirds of millionaires consult with advisors, at least to some degree, about investments. Tiger 21 found that when it comes to doing their own research, its members favor newspapers, magazines and websites over television and radio. The top four sources of financial news and information for Tiger 21's millionaires (in order of preference): The Wall Street Journal, The New York Times, investment-research website Seeking Alpha and The Economist.

Most Popular

Senate Passes $3,000 Child Tax Credit for 2021
Coronavirus and Your Money

Senate Passes $3,000 Child Tax Credit for 2021

The provision would temporarily increase the child tax credit to $3,000 or $3,600 per child for most families and have 50% of it paid in advance by th…
March 6, 2021
Senate Passes Bill with More "Targeted" Stimulus Payments
Coronavirus and Your Money

Senate Passes Bill with More "Targeted" Stimulus Payments

The Senate finally passes the $1.9 trillion COVID-relief bill. But fewer people will get a third stimulus check under the Senate version than under th…
March 6, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Why I Like Ginnie Mae Funds Now
Investing for Income

Why I Like Ginnie Mae Funds Now

A portfolio of mortgages should retain their value better than ordinary bonds if interest rates rise.
February 28, 2021
33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
February 24, 2021
2 Top-Tier T. Rowe Price Mutual Funds
mutual funds

2 Top-Tier T. Rowe Price Mutual Funds

T. Rowe Price's mutual funds typically stand out among their peers, but these two selections provide elite equity and bond exposure for this point in …
February 24, 2021