8 Ways the Rich Invest Their Money Differently Than the Middle Class
Written by
Cindy Lamothe
Edited by
Amen Oyiboke
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The rich often play a different game than the middle class. Wealthy individuals make it a point to invest in their own personal development, education, and skills to ensure sustained success over the years.
All to say, they don’t focus on immediate gains–instead, they plan ahead and have a long-term perspective when it comes to money. “Unlike the middle class, the wealthy can afford to take a more patient approach to investing,” said Molly Haines, real estate investor and owner of Cash Home Buyers. “They have the luxury of thinking beyond short-term market fluctuations and focus on strategies that preserve and grow wealth over decades.”
Here are some ways they invest their money differently than the middle class.
Diversification
According to Jon Morgan, CEO and editor-in-chief of Venture Smarter, while the middle class might focus on traditional investments like stocks and bonds, the wealthy are more likely to diversify across various asset classes. “They’re not putting all their eggs in one basket, you know?”
Wealthy individuals will also often have more resources to diversify their investments across various asset classes, such as stocks, bonds, real estate, private equity, alternative investments and even start-ups to spread risk and seize various growth opportunities. This diversification helps spread risk and can lead to a more resilient portfolio, said Haines.
Greater Access
The rich often have access to private equity, hedge funds, and venture capital deals that the middle class might not even know about. “It’s like they have a backstage pass to the investment world,” Morgan pointed out. “This exclusive access allows them to tap into high-growth opportunities that can yield substantial returns.”
“Imagine a wealthy individual getting involved in a new tech startup before it goes public,” Haines added. “They have the chance to support and benefit from a company’s early growth, an opportunity often not available to the middle class due to minimum investment requirements or exclusive access.” She explained that high-net-worth individuals often have access to this kind of exclusive investment opportunities that normally aren’t available to the general public.
Real Estate Investments
Instead of solely relying on a primary residence, the wealthy might own various properties. Investing in real estate offers diversification, potential tax benefits, and the opportunity for appreciation. These could range from vacation homes to income-generating commercial real estate–creating a diversified real estate portfolio that goes beyond the average homeowner’s strategy. “Wealthy individuals may invest significantly in real estate, including commercial properties, luxury residences, and real estate development projects,” said Haines.
Direct Ownership of Businesses
High-net-worth individuals will often directly invest in or own businesses. According to Haines, this involves starting their own ventures or acquiring ownership stakes in existing companies. “Business ownership allows for more control and potential for substantial returns,” she explained.
What this looks like: A wealthy person who not only invests in stocks but owns a part of a local business or even several businesses. “This direct involvement allows for a personal connection with the success of these ventures and the potential for significant returns.”
Tax Planning Strategies
Wealthy people often have a team of financial experts working on their taxes for them. They might use legal structures and financial tools to minimize tax burdens, allowing them to keep more of their wealth and potentially invest it for further growth. “The rich often engage in sophisticated tax planning strategies to optimize their financial position,” said Haines. This can include strategic use of tax-advantaged accounts, trusts, and other structures to minimize tax liability.
Professional Financial Advice
Another investment the rich are more likely to make compared to the middle class is having a team of financial advisors like investment professionals, estate planners, and lawyers–all working together to create a comprehensive and personalized financial plan for managing their wealth.
“When it comes to investing, wealthy individuals and families often have advantages that come from their investment advisors,” said Asher Rogovy, chief investment officer at Magnifina. These advisors aren’t just picking stocks, he explained. “They’re unlocking strategies that many might not even consider.”
Beyond stocks, advisors can provide access to a whole world of alternative investments like private equity, venture capital, or real estate. “These opportunities are often out of reach without the right connections,” Rogovy added.
Moreover, he notes that their expertise extends to long-term financial planning, making them indispensable for those looking to maximize their investments and secure their financial future. “In essence, the right advisor opens doors not just to advanced investment techniques, but to a holistic approach to wealth management.”
Retirement
“I grew up middle class and was taught to put money into retirement accounts and work for 50+ years,” said Charlie Hardage, real estate investor at H&K Investment Group. “I am now a full-time real estate investor that is learning how the wealthy invest. It is much different than what we are taught in school,” he shared.
According to Hardage, the middle class is taught to put money into retirement accounts and accounts that are hands-off. “The unfortunate thing about that is the middle class works so hard and puts their money into accounts that they don’t have access to–in most cases–for 30-40 years.”
The wealthy, on the other hand, invest in assets that produce income that they can use much sooner. “This allows them to reinvest a multitude of times before they hit retirement,” said Hardage. The rich also invest in opportunities where they have control, provide them with tax advantages, asymmetric returns, and they use the velocity of those investments to make money much quicker than their middle-class counterparts.
Philanthropic and Impact Investing
According to experts, the rich will often take up philanthropic activities through their investments. For example, they might invest in socially responsible, sustainable, or impact investments that align with their personal values.
“Consider a wealthy individual who not only donates money to causes they believe in but also strategically invests in projects or organizations that align with their philanthropic goals,” said Haines. “This approach allows them to make a positive impact while potentially generating financial returns.”
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