Advertisement
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.

Advertisement - Article continues below

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.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
17 States That Will Gain or Lose Electoral-College Votes After the 2020 Census
Politics

17 States That Will Gain or Lose Electoral-College Votes After the 2020 Census

Every 10 years, the 435 seats in the House of Representatives are reassigned based on the results of the U.S.
July 2, 2020

Recommended

3 Municipal Bond Funds for Rich, Tax-Friendly Yields
Investing for Income

3 Municipal Bond Funds for Rich, Tax-Friendly Yields

Municipal bond funds allow you to enjoy the benefits of tax-exempt income. By investing CEFs, you can sweeten the pot even further.
July 2, 2020
Is the Stock Market Closed for the Fourth of July?
Markets

Is the Stock Market Closed for the Fourth of July?

Independence Day falls on a Saturday in 2020. As a result, the bond and stock markets are closed for a long holiday weekend. Here's a look at the mark…
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
June 25, 2020