Young Millionaires Don't Put All Their Eggs In One Basket – Here's What They Are Investing In For Massive Growth

Ever wondered where the truly wealthy stash their cash? It’s a question that fascinates many, and the answer might surprise you. 

A recent survey by Bank of America Private Bank sheds light on the financial habits of millionaires in the United States. It turns out that the wealthiest Americans, particularly those ages 21 to 42 with at least $3 million in investable assets, are taking a different approach to wealth management than their older counterparts.

According to the survey, these young millionaires hold only 25% of their assets in stocks or stock funds. In contrast, wealthy investors 43 and older allocate an average of 55% of their assets to stocks. 

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The age-old adage, “Don't put all your eggs in one basket” has never been more relevant than it is today. Wealthy millennials have internalized this lesson, and it’s reflected in their investment choices. So, where are the truly rich parking their wealth? Below are the diverse range of financial and real assets that high-net-worth individuals are favoring.

1. Cash And Cash Equivalents: The Wealthy’s Safety Net

Frugality is a common trait among many millionaires. While they enjoy some luxuries, they are also diligent savers. Before diving into investments, they establish substantial emergency funds. In a world where time is money, many millionaires keep a significant portion of their wealth in cash or highly liquid cash equivalents.

Studies suggest that, on average, millionaires may have as much as 25% of their wealth in cash. This prudent approach helps them offset potential market downturns and acts as a safety net for their investment portfolios. Cash equivalents, which are highly liquid financial instruments, are also favored. Examples include money market mutual funds, certificates of deposit, commercial paper and Treasury bills.

Some millionaires strategically invest in Treasury bills, consistently rolling them over and reinvesting the proceeds. Treasury bills are short-term notes issued by the U.S. government to raise funds, often purchased at a discount. When sold, the difference between the face value and the selling price becomes a profit. This strategy is favored by financial guru Warren Buffett, the CEO of Berkshire Hathaway Inc.

Goldman Sachs says: Portfolio(s) with a slice of real assets [like art] performed even better than the 60/40 over the long run.

2. Real Assets: Tangible Wealth

For the wealthy, diversification goes beyond stocks and bonds. Real estate holds a special place in their portfolios. This asset class includes residential properties, commercial real estate, vacation rentals and real estate investment trusts (REITs). The appeal lies in the tangibility of these investments and the potential for rental income.

3. Collectibles And Luxury Assets: Where Passion Meets Profit

Beyond traditional investments, many millionaires diversify by indulging in their passions. They invest in rare art pieces, vintage cars and other collectibles. These items not only have the potential to appreciate significantly in value but also bring joy through ownership.

One avenue that has gained considerable attention in recent years is investing in fine art through platforms like Masterworks. This novel approach allows art enthusiasts and investors alike to own shares in valuable artworks, often created by world-renowned artists. The allure lies in the potential for both aesthetic enjoyment and financial gain.

Masterworks has opened the door for investors to participate in the art market, which historically has been reserved for the elite. By purchasing shares in high-value artworks, investors can potentially benefit from the art’s appreciation over time. This democratization of art investment has piqued the interest of many wealthy people seeking to diversify their portfolios while indulging their passion for art.

4. Entrepreneurship: The Wealth Builder

More than two-thirds of all millionaires are entrepreneurs. They’ve built their wealth through innovation and hard work, not just inheritance. This entrepreneurial spirit often leads them to invest in their own businesses or in promising startups, either directly or through private equity funds.

5. Startups And Private Equity: Nurturing Innovation For Financial Growth

Many young millionaires invest directly in startups or through private equity funds. This approach allows them to support innovation and potentially reap substantial returns if a startup becomes wildly successful. These investments also provide a sense of involvement and impact on the businesses they support.

Whether you’re a millionaire or not, understanding these strategies can provide valuable insights into sound financial management. A trusted financial adviser can help people at all income levels take significant steps toward achieving their financial goals, just as private bankers assist the truly wealthy in navigating the complex world of finance.

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