Wealthy investors don’t have a huge advantage over the average investor.
Many wealthy investors invest the same as you. However, there can be significant differences. In most cases, you can match the investments of wealthy investors by alternative means. There are few investment strategies you can’t mimic, even if you’re an average investor.
Interestingly, very few wealthy investors are able to outperform the market average. You might be better off with an index fund, but it’s interesting to see how the rich do it. Learn some of their favorite investments and see how you can take advantage of these strategies yourself.
Wealthy investors routinely take advantage of these investments:
1. The wealthy often invest directly in businesses. Buying a significant stake in a company or starting a company from scratch is risky, but the payoffs can be huge. This type of attitude is what creates many of those with a high level of wealth.
Average investor: It’s now possible to invest in startup companies via crowdfunding. You can also start your own company from your laptop. You might not have $25 million to invest, but you can get in on the ground floor.
2. The wealthy invest in hedge funds. There are several requirements that must be met before you can invest in a hedge fund, and one of them is having a net worth of at least $1 million. Hedge fund managers can invest in just about anything they please, including stocks, bonds, derivatives, real estate, futures, and more.
Hedge funds charge very high fees and are very risky, but the returns can be very high.
Average investor: You’re not missing much. Over time, hedge funds usually fail to outperform the market. You can do anything a hedge fund manager can do, just on a smaller scale. This type of investing requires a lot of expertise.
3. The wealthy are more concerned with risk than the average investor. Wealthy investors tend to look at the expected return and determine if the risk is worth the potential return.
Average investor: Learn how to assess the risk in a potential investment. Then look at the potential return and the likely return. Ask yourself if the possibilities are worth the risk.
4. Some wealthy investors invest in art and vacant land. These investments aren’t very liquid, provide no income, and are highly speculative. However, the right piece of art or 2,000 acres of timber land can result in a handsome payday.
Average investor: You can hit the local art show and search for a diamond in the rough. You might have a better chance winning the lottery, though. Vacant land is a risky investment, because there are taxes to pay and a lack of cash flow. A better bet would be to purchase a home or small multi-unit building and collect rent.
5. Wealthy investors get expert help. Most wealthy investors leave the investing decisions to others. Many of those with a high net worth are too busy making money to deal with investing it.
Average investor: You can buy this same help. Pay for an hour of an expert’s time. If you’re interested in a long-term strategy, an hour of advice every year or two is plenty. More active trading will require educating yourself. There are endless books and websites on the subject of investing. Get busy learning.
You can invest like the wealthy if you’re willing to be a little creative. Wealthy investors don’t have a huge advantage over the average investor. Keep saving and investing to the best of your ability. Get some expert advice when you’re feeling lost. One day you can be wealthy, too. How will you invest when you’re wealthy?