The World's Wealthiest People Have These Investment Strategies In Common

Investment strategies can vary greatly among knowledgeable investors. There's no single "correct way" to leverage your money to generate more of it. Some investors flock toward tangible assets like gold bullion or real estate while others prefer to wade into speculative markets like futures trading and even cryptocurrency swaps. No matter the way you or anyone else interacts with the broad market of investment products, a few key 'rules' certainly stand as a focal point for any new decision making task. Investors consistently seek to park their money in assets they expect to grow, for one thing. No one intentionally buys shares in a company they expect to lose value, after all.

A guiding set of principles goes beyond the asset classes (such as stocks or bonds) and subtypes (like REITs, the industrial sector, or FAANG stocks) that you focus on. It involves things like risk assessments and diversification priorities. Investment strategies might focus on features like short-term momentum, or take cues from P/E ratio figures and dividend payout rates. One source of inspiration for many investors is in the way that wealthy individuals utilize their money. Investors like Warren Buffett offer a great example to mold your approach around, for instance (he's even perhaps the only financial celebrity that industry pros actually respect). Beyond the financial wisdom the Oracle of Omaha frequently metes out, there are actually lots of strategies that wealthy investors have in common, here are some of the most potent approaches that might shed light on how you can tailor a more impactful investment strategy for your own needs.

Diversification is a big one. Wealthy investors tend to be people who understand the value of portfolio diversification. This doesn't necessarily mean investing in a range of different asset classes, but it certainly could be framed in this manner for some. Diversification is the process of spreading assets out across multiple investment opportunities so that a downturn in the market is less likely to impact your entire network of holdings. All kinds of marketplace changes can impact the stock market and other investment areas like real estate. New legislation, the outbreak of war, or a certain, recent global health crisis can all come to alter the way companies do business. This can have a positive impact in some instances and a decidedly negative one at other times. Major crises can thrust the stock market into a bear trading period that affects many different industries and market sectors. However, the typical behavior of the market isn't one in which every company and asset type exhibits the same kind of causal effect.

A hypothetical conflict with a trading partner, for instance, might see that country's imports become far more expensive, reducing the share price of companies that manufacture their goods in that location. All manner of influences can impact stock prices, and so investing in a broad range of opportunities allows you to protect the total value of your holdings in the event of unforeseen market changes that negatively impact certain interests in your portfolio.

The world's wealthiest people are frequently at war with their tax liability. Most Americans receive a refund after logging their taxes with the IRS. This is because the average salary in America is roughly $67,000 and most people follow a basic withholding pattern that doesn't generally take into account the standard deduction upfront. This means that you'll ultimately end up paying more in taxes on a check-by-check basis than is necessary. For those whose income is driven primarily by their salary, the tax calculation is straightforward and usually ends up in an advantageous surplus that comes back to you.

The super rich create income in other ways. Most upper class and extremely wealthy people utilize numerous income streams. For those who bounce around in the stock market on a regular basis, tax preparation is a bit more complicated because capital gains taxes are not withheld after each new transaction. End of year calculations will then have to account for these additional obligations. The same can be said for rental properties or the sale of many other investment assets and complicated business arrangements. Wealthy investors might consider using loss harvesting tactics to reduce the weight of their tax burden after selling shares. But one of the most important things they always keep in mind is the transition from short to long term capital gains assessments. If you own a stock for a year or more, it will be assessed at the long term rate. At the top of the tax bracket, this means either being assessed a 37% tax rate or one that maxes out at 20%.

Long-term thinking is one of the most important features of any investment strategy. Warren Buffett is famously a long-term thinker and his company, Berkshire Hathaway's, Class A shares mirror this sentiment. They've never been split before and trade at over $700,000 apiece. Buffett isn't the only long-term thinker that lends himself as an example to others.

Mark Cuban is another high-profile celebrity in the finance world that focuses on long-term growth, in particular. What these and other high-net-worth investors have in common is an understanding that building for the future takes work, sure, but it's helped along at a rapid pace by your vision and perseverance in sticking to the plan. They say that Rome wasn't built in a day, and the same applies for those looking to construct a nest egg that supports their golden years or provides a major inheritance to their children. If you want to become a millionaire by the time you retire, you can either invest $250 a month from the time you turn 19, or $750 starting from your 35th birthday. The difference time makes is invaluable. Thinking with a long term vision mark of high net worth investment strategy, and fortunately it's one that everyone can mimic.

When you employ long-term thinking in your investment approach, you gain a genuine level of access to a strategy that everyone talks about. The concept of buying low and selling high is so simple that it's stupid investment advice. Everyone knows that the baseline goal of investing is to buy assets that appreciate in value and then sell them at a profit rather than a loss. But when you really think about what this strategy means you're left pondering a much bigger question. In order to consistently buy low and sell high, you'll need to consistently employ one of two features in your investment strategy. There's always the chance that you'll find yourself as the luckiest person in the room. You might buy into investments that frequently find themselves in the upswing. But luck isn't something you can count on, certainly not when it comes to growing your wealth.

The only realistic way to find yourself routinely selling assets while taking profits is to think about the larger goals and maintain a patient disposition. The longer you hold on to assets, the greater your opportunity to sell when they are performing well. Not every company will grow in value over the long term, but with the market as a whole generally seeing an upward trend in its valuation, you can typically expect growth assets to actually grow over the long term. Confidence in this kind of movement diminishes as your time horizon shortens, however.

Dollar-cost averaging is an interesting approach to stock market trading that many wealthy people deploy to help manage expectations and stay ahead of diversification tasks. Rather than thinking in shares about the assets you want to purchase, this approach will see you determine a dollar amount you want to invest in particular companies. Similarly, rather than pumping cash into an investment all at once, this approach spreads out your buy-ins over a lengthy period of time.

Using the dollar-cost averaging method, you might dedicate $100 a month to a certain stock, as an example. If the company's share price averages roughly $10 apiece, you'll typically buy around 10 shares per month. However, when the share price rises your $100 investment will buy fewer shares and when it falls your investment will go a little farther, yielding a larger position. When used across numerous share purchases, this can be a fantastic way to ensure that you're keeping your asset blend in line with a certain level of diversification that's been pre-assessed during your research. That $100 monthly investment might be 10% of a predetermined total ($1,000 in this case) purchasing power dedicated to stock market trades. Wealthy investors utilize this approach to keep their asset blend under control and in line with their larger strategy.

One investment opportunity that the world's wealthiest people have at their disposal isn't one that exhibits a like-for-like equivalent in the retail investment world. However, it's still worth exploring because the example might be useful for someone who comes across a unique investment opportunity that might be worth fleshing out. High-net-worth investors can get into new positions through private equity channels, allowing them to invest in companies that aren't listed publicly on the stock exchange (or in penny stock trading circles, as another example).

Investing in private equity tends to deliver a higher yield potential for wealthy investors who are willing to stomach the risk. This is a great option for someone whose asset blend is too conservative and requires a new infusion of higher upside opportunities. However, investing in this manner does come along with some unique risks. Investments in companies that aren't publicly traded generally results in illiquidity that can't be easily overcome. This same problem affects all investors, even if private equity isn't on the table. Buying into bond funds or utilizing a CD laddering strategy comes along with certain elements of this same problem. Once again, this is something that diversification can help mitigate.

Another marketplace that high-net-worth investors have great access to is the world of real estate. With a greater total dollar amount available to utilize when making a new investment, wealthy investors often consider more expensive assets to bring into their portfolio than those existing in the middle class. Real estate is often one of those opportunities. Real estate holdings have the potential to be real winners for investors. Over the long term, real estate consistently shows a marked volume of growth, and in the short term it can be utilized as a dividend producer in the form of rental income. More importantly, wealthy investors have greater access to lending opportunities that can reduce the buy-in cost to begin drawing these benefits.

For those without the financial resources to invest in a rental property or a home that might be a good candidate for flipping, REITs are a great alternative. These stock market assets behave in the same way that index funds and ETFs perform. However, the bundled assets found within a REIT are physical real estate holdings rather than shares of companies. This means that you can invest in the property market without having to find and negotiate a traditional purchase.

Another common feature of wealthy investors is an early start. Many people born into significant wealth will have investments made on their behalf years before they can actually get into the action themselves. There's inheritance to consider, of course. But many parents belonging to the ultra-wealthy financial classes launch joint investment accounts for their children as soon as they are born. This provides a great opportunity for children to learn the market at a young age with very little (or even zero) pressure. Investing for your children allows them to ease their way into learning the market. It can also provide an extra 16 or 18 years of potential growth opportunities before they start adding to the pool of resources themselves and actively managing it all on their own.

Fortunately for the rest of us, this is something that everyone can do. Opening a savings account or an investment portfolio for your children isn't something that only the ultra-wealthy can accomplish. Everyone can open a joint account of this nature for their children and get them started on their savings journey right away.

Homeowners are often at least vaguely aware of their ability to refinance their home or tap into its equity with a HELOC or some other kind of secured financing opportunity. For most people, a residential home is their most valuable asset. However, high-net-worth investors often have orders of magnitude more value locked up in the stock market and elsewhere. Instead of selling out of their positions in order to free up cash for lifestyle needs, they will utilize something very similar to a home equity loan.

Lending with the help of their portfolio takes on a similar form to a secured financing arrangement that sees your home put up as collateral. This allows wealthy investors to get the cash they need to move, invest in something new, or pay for a big expense like a medical procedure or college education without taking the tax hit that would otherwise come from selling shares or other investment positions. They also get the benefit of seeing their investment continue to grow while remaining under their control throughout the lending arrangement.

Bonds are not interesting, and they certainly don't provide high yields to investors. Investing in bonds won't give you a unique and hip talking point to bandy about while you're out with friends or talking shop with colleagues. But bonds are an important resource in the asset mix of most high net worth individuals. They sit quietly in the background and provide a crucial level of stability that is virtually unmatched by any other investment that can be made in the marketplace. Simply put, bonds deliver a guaranteed payout that is agreed upon when you purchase the asset. Buying into a bond gives you specific details about the maturity date and the value of the investment at that time. These are rock solid figures that don't change. Whether you're buying into government bonds more corporate options, the stability is unmatched.

But not all bonds are created equal and tax-advantaged municipal investments are a particular favorite for those in the ultra-wealthy cohort. In some cases, you can buy bonds that deliver tax free appreciation from your local municipality. Rates might be less favorable than some other options on the market, but there's no getting around the value that not having to work around tax liabilities when cashing in your investments brings. This is yet another investment opportunity that anyone can bring into their portfolio, allowing the typical investor to mirror this strategy of the wealthy.

Risk tolerance is a key feature that every investor needs to explore and set for themselves. Understanding your personal appetite for volatility is a guiding feature that will help you make sense of the marketplace and tackle every decision you will encounter as you trade your way through the investment experience. If you don't know where your risk profile lies, you can't make intelligent decisions about when to buy into new opportunities and liquidate other holdings. Wealthy investors understand the relationship between their needs and their appetite for risk out of necessity. Protecting their portfolio while still chasing growth is a key feature within this class of investor. It also happens to be critically important for every other trader in the market.

Generally speaking, you'll have far more ability to shoulder market downturns and bad investments in your youth than when you get closer to retirement age. The older you are the less time you have to rebound from something that knocks you off a steady pace of upward growth. Internalizing this lesson and keeping it close at hand as you make each new investment decision will help guide your path forward. Wealthy investors know this and they consistently reevaluate their risk tolerance in order to adjust their strategy for the best blend of upside potential and principal defense.

Rebalancing your portfolio can be scary. It never feels like the right time to sell off assets en masse or shift your investment focus from one sector or group of companies in order to begin growing a new bulk of holdings elsewhere. But diversification and solid portfolio management requires you to reevaluate your strategy on a regular basis and to make adjustments that help support your continually evolving research, changes in market conditions, and more. The market isn't a static monolith, and so treating your investments as if it is will only serve to place you in a vulnerable position with increasing risk of cataclysmic consequences.

Wealthy investors understand that the market can be volatile and that change is the rule within the investment world. These investors are equally averse to blowing up their portfolio to make big changes, but if the correct strategy forward dictates that this takes place, they don't hold onto emotional attachments when it comes to their stock assets and other portfolio inclusions. Of course, selling lots of shares can drastically change your tax liability. This is a particular sticking point for high net worth investors. However, sometimes the best approach involves a short term tax hit that opens up new growth opportunities that will see share value soar long into the future.