My investment pot is growing and I was curious to find out how millionaires invest once they’ve made their millions. And a quick Google search revealed plenty of reports based on interviewing real-life millionaires and billionaires from around the globe.
How I’d invest like a millionaire
One of the key findings is most millionaires invest the bulk of their wealth in assets that will appreciate in value over time rather than in assets that depreciate. And that seems logical because, having made their own fortunes, the first priority for most would probably be to hang on to it. I’m mindful of the old adage ‘a fool and his money are easily parted’.
Of course, most millionaires aren’t fools. Otherwise they wouldn’t have built their fortunes in the first place. And it’s perhaps no surprise to learn that most rich people choose the mainstream asset classes of property (real estate) and equities (shares) as homes for most of their wealth. Both classes of assets have the potential to deliver expanding returns over the long term.
And much millionaire wealth can be found in equities listed publicly on the stock market. Just like all investors, the degree of hands-on execution of their investment strategies varies between individuals. Some millionaires are content with bunging their fortunes into tracker funds. Others select managed funds and investment trusts. And some love the challenge of investing and aim to beat the general market’s performance by selecting individual shares.
My own approach would involve spreading money between all the options. I’d want to achieve diversification of investment strategy alongside diversification between underlying businesses.
Keys to building wealth with shares
Of course, there are as many ways as anyone can think of to make the millions in the first place. But one common theme among today’s self-made rich is they were careful with money on the way up. It almost goes without saying they saved loads and kept spending well below their incomes. That said, many lived a comfortable and rewarding lifestyle while building their fortunes.
The great news is, one well-proven path to building a fortune worth at least a million is through the process of investing itself. We don’t all have to be company chief executives on half a million a year to accumulate a million. Many people earn average salaries, invest well and, over time, build up their assets to a seven-figure sum.
I reckon the key to wealth generation via investing in shares is to avoid big losses and to compound gains. And we don’t have to find the next big multi-bagging whizz-bang share to make good money from investing. Compounding steady gains over a long period of time can produce outstanding returns.
So, to build wealth and achieve financial freedom, I’d use the very same vehicles millionaires use to preserve theirs. Namely, index tracker funds, investment trusts, managed funds and the shares of companies with good-quality underlying businesses.
Kevin Godbold has no position in any share mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.