If you want to manage your finances in a shrewd and prudent manner, you would be well-advised to prioritize safety and capital preservation above all other considerations.
Indeed, this is why depositing your assets in a regular banking account is typically viewed as an intelligent move, especially for those with a more cautious approach to money management.
In fact, most financial institutions are underwritten by government-backed insurance programs, which seek to protect and mitigate the losses to your deposits even if your bank does run into trouble somewhere along the line.
Moreover, because banks offer a range of financial products that aim to boost your wealth – such as saving schemes and pension accounts – you can grow your funds passively as well. Even standard checking accounts allow you to earn interest on your deposits, ensuring your cash pile increases over time.
Given this, you might think that extremely affluent individuals store their money in the same bank accounts as regular customers do. After all, with millions of dollars to their name, why would they need to invest those funds anywhere else?
However, while billionaires need banks to hold some portion of their riches, they also invest in financial instruments that compound their wealth and manage potential risks.
So, let’s examine these methods – and figure out why they choose to put their treasure in places other than a bank.
For a variety of reasons, investing in real estate can prove to be an incredibly lucrative pastime for savvy billionaires.
For instance, with their leveraged resources, well-heeled developers can purchase a wide range of properties, generating significantly elevated returns through a substantial suite of rental incomes.
Additionally, obtaining high-end buildings can enhance a person’s reputation and positioning within society, as some view such ownership as a marker of success and financial intelligence.
Furthermore, for those interested in making a positive impact on society, real estate provides a chance to use their capital towards responsible investments. From green building projects that promote sustainability through energy-efficient structures or development efforts geared towards under-resourced communities, there is no limit on how billionaires can use their money for positive change.
Arguably the most important reason billionaires choose real estate is for its tax advantages, including depreciated costs, pass through deductions, capital gains tax advantages, write-offs, and tax deferrals.
Fine Art And Wine
Investing in artworks and other ephemera is a wise strategy for billionaires due to the long-term growth potential and unique nature of these alternative assets.
Indeed, as a store of value, they’ve proven themselves resilient against economic downturns and inflation over time. For example, art collections are usually one-of-a-kind pieces that appreciate in worth over the decades, with increasing rarity adding to their appeal.
Similarly, sought-after wines from renowned vineyards are highly prized due to their limited production runs and the growing international demand for such prestigious beverages.
Other collectibles like classic cars hold a special appeal as uniquely crafted works of engineering marvels whose allure increases based on demand within the collector community.
Stocks, ETFs and Mutual Funds
Stocks, ETFs and mutual funds have long been regarded as a desirable asset class for high-net-worth investors, with their attractiveness stemming from various quarters, including the benefits of a regulated market, predictability, and the probability of explosive returns.
For example, rules governing how the stock market operates ensure that equities, mutual funds, and exchange-traded funds are traded transparently and fairly, giving investors confidence in their investments’ integrity.
Additionally, stock investing allows for greater predictability due to companies having to disclose quarterly earnings reports and providing guidance on future performance.
Furthermore, the stock market presents an opportunity for exponential returns compared to other traditional asset classes – such as bonds or real estate – because they give access to ownership in growth-oriented companies in rapidly expanding industries like technology and pharmaceuticals.
Billionaires will sometimes also invest in unlisted securities because of the added privacy and confidentiality that they offer. This can be particularly important for individuals moving large sums of money and wanting their actions to avoid unwelcome scrutiny.
Bonds And Treasury Bills
People who require the ability to convert their wealth into quick and easy cash may turn to government bonds and T-bills as a way to meet their financial needs.
One reason why investing in bonds is a good option here is that they’re generally regarded as highly liquid securities. This implies they can be easily and quickly bought and sold on financial markets, providing billionaires with immediate access to their cash when required.
Bonds usually have a predetermined term, allowing investors to know precisely when they will receive their principal back. As such, bonds are a reliable and predictable source of cash.
This makes them an appealing choice for anyone needing rapid access to their cash without taking on unnecessary risk.
Do Billionaires Keep Their Money in Banks?
Billionaires almost always spread their wealth across different sectors, investing in equities, bonds, and unlisted securities. They also invest in real estate and unconventional assets like collectibles, wine, and art.
Moreover, by entrusting their hard-earned resources to a multitude of investment vehicles, the super-rich can optimize the likelihood of generating market-beating returns while mitigating the impact of unforeseen volatility on their vast portfolios.
Although high-net-worth individuals do squirrel away some of their money into regular banking accounts, not all will choose to follow this path. Banks generally provide low-interest rates on savings compared to more exotic investment opportunities, meaning the yields are usually far less attractive. On top of that, some billionaires may choose to place their wealth in non-bank assets to maintain greater control over their financial resources.
Finally, owning a blend of investment types can help billionaires manage their tax burden, with offshore accounts and other financial mechanisms limiting their exposure to legal liabilities and other additional costs.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.