I’m a Financial Advisor: 4 Investing Rules My Millionaire Clients Never Break
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Angela Mae
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Ashleigh Ray
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Ever wonder how millionaires invest and grow their money consistently? While every investor has a unique journey, many wealthy individuals follow a core set of investment strategies that help them protect and build their assets over time. Yet, what exactly are these essential rules they follow, and how can you apply them to your own wealth-building strategy?
GOBankingRates spoke with Chris Hernandez, founding partner at Strategic Capital, and Ryan Zabrowski, a certified financial planner (CFP), senior portfolio manager at Krilogy and author of “Time Ahead,” to find out. These are the top investing rules they said their wealthiest clients never break.
Keep Things Liquid
For many high-net-worth individuals, one major investing rule is to keep some things liquid.
“One of the first things our millionaire clients do is apply for a Pledged Asset Line of Credit on their non-qualified brokerage account,” said Hernandez. “For example, if a client has a brokerage account valued at $2,500,000, that client could get a line of credit from their brokerage account of approximately $1,400,000. In my experience, wealthier clients are entrepreneurial and like to have access to liquidity to make investments outside of the stock market.”
So how does this work?
“Instead of having to cash out their positions and possibly pay taxes on any gains, they can access their line of credit, make the investment and only pay interest on what they borrowed, while their capital continues working for them,” Hernandez continued. “Once the investment pays off, they tend to pay off their line of credit, so they have access to the funds in the future and can continue to create more and more wealth.”
Consider Time In Rather Than Timing the Market
The stock market is always in flux, so trying to time it is a fool’s game. Investing like a millionaire not only requires having a little more financial literacy than the average person but also being able to stick to a long-term strategy.
“One of the rules my wealthier clients follow is that time in the market is more important than timing the market,” Hernandez said. “They consistently put money away, regardless of what is happening in the stock market.
“This determination and dedication are among the reasons they have become so successful. If an opportunity or emergency arises unexpectedly, they are already prepared and can approach it proactively rather than reactively.”
Choose Safe and Low-Risk Investments
According to Zabrowski, the wealthiest families in America protect and grow their wealth by utilizing two investment strategies that provide safe, low-risk returns: bond ladders and arbitrage. “In simple terms, they use these strategies because they make a lot of money with virtually no investment risk,” Zabrowski said.
“Most people either don’t know about or understand these investments because they didn’t grow up in wealthy families,” he explained. “Frankly, most advisors don’t understand these strategies because while they are fundamentally uncomplicated concepts, they are laborious and demanding to execute and administer effectively.”
Stick With What Works
As with long-term investing in the stock market, many millionaires build and maintain their wealth by choosing investments that have shown consistent success over time.
“A third element of how the wealthy get and stay that way, while not low-risk like bond laddering and arbitrage, is investment real estate, which currently accounts for roughly 17% of America’s gross domestic product (GDP),” Zabrowski said.
And the returns can be great. “While real estate does not represent the same type of safe, low-fee investing as bond ladders and arbitrage, some of the greatest fortunes have been made through real estate investing,” Zabrowski wrote in his upcoming book. “Real estate provides numerous benefits: passive income, tax benefits, leverage, appreciation and cash flow.”
On that note, he added that “wise investors don’t bet on appreciation. They purchase properties on a sound judgment that the property will generate more income than it costs to own.”
Caitlyn Moorhead contributed to the reporting for this article.
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