Forbes keeps a list of the richest people in the world, and it is updated real-time alongside the stock market. At the start of 2021, Amazon’s Jeff Bezos and Tesla’s Elon Musk were in the top two spots with fortunes that exceeded $180 billion apiece.
A large part of the wealth these billionaires hold is tied up in the stock market. That means rankings change frequently as shares of their respective companies gain and lose value.
However, billionaires don’t typically keep all of their wealth in one place – and of course, they don’t rely on standard checking and savings accounts. That leaves many wondering where do billionaires keep their money?
Capital Preservation Is The Goal Of The “Super Rich”
Every investor knows that portfolio diversification is critical for reducing risk. A well-considered collection of complementary assets protects wealth by ensuring that when one asset loses value, another gains. For example, when the stock market is on a downward trend, real estate or bonds or gold may rise.
Billionaires make capital preservation their number one goal, which is why few trust their company’s stock alone with their entire fortune. They spread their risk out by investing in a variety of asset classes that have proven deliver reliable returns over time.
For example, Elon Musk doesn’t hold all his chips in Tesla stock. He’s spread them around into SpaceX and Neuralink.
Where Do Billionaires Keep Their Money?
Aside from shares of their company stock, billionaires tend to focus on five types of lower-risk investments:
Corporate Bonds Are Ideal When Income Is The Goal
The world’s richest people often invest in corporate bonds, because bonds behave differently than stocks. Bonds are essentially loans taken out by corporations to raise needed funds, and bondholders benefit from the interest paid on these loans.
The quality of a particular bond depends on the underlying financial state of the company issuing the bond. As with any lending relationship, the company’s credit rating plays an important role in determining the level of risk.
Bonds from companies with less-favorable credit histories pay more interest to bondholders due to the increased risk. Conversely, companies with high credit ratings sell their bonds at far lower rates of interest.
Most importantly, bonds are senior to equity in the capital structure of a company, so if anything really bad ever happened the bondholders would get paid first.
If you wanted a guaranteed return every 6 months or so, you could buy Apple bonds for example instead of buying shares of the equity.
Diversified Index Funds Is Best For Passive Investors
Index funds are intensely satisfying for any investor in search of diversification. These products compile a collection of securities that mirror leading indexes like the S&P 500.
Investors purchase shares in the fund, which gives them instant diversification. Each fund share represents dozens – sometimes hundreds – of stocks.
The value of index fund shares fluctuates alongside the underlying index, but most investors don’t mind these ups and downs. There is a general sense of confidence in the promise of long-term returns, as the market has for the most part gone up over time.
Warren Buffett has famously said that if you don’t know what you’re doing when it comes to investing the best place you can park your money is in the S&P 500; it’s essentially a bet on America’s best corporations.
Art Is A Great Store Of Value
Investing in art is a complex endeavor, as it takes skill, confidence, and patience. Returns are not guaranteed, and when they do come, it’s often over a decade or more.
The secret is to choose pieces from up-and-coming artists that will eventually be in high demand as the artists’ careers progress. However, most art investors are unsuccessful when it comes to predicting which artists will make it big.
However, there is another option for those with massive fortunes – buying artworks that have already proven their worth. For example, it goes without saying that Picasso and Van Gogh will always command high prices, so some billionaires purchase masterpieces as a way to store value.
For some, this is the extent of their investment in art, while others take a dual approach – they purchase extremely valuable art from well-known artists in addition to collecting pieces from little-known makers that may someday deliver a return on investment.
Gold Has Been Proven Over Centuries
The concept of keeping wealth in gold dates back centuries. Gold has long been considered intrinsically valuable, and it tends to be less correlated with the stock market than most headline names you’ll see, such as FAANG stocks.
Some billionaires buy actual gold in the form of bars, coins, bullion, and jewelry.
Others choose investments related to gold that do not require accepting and storing the precious metal. Some examples of gold-related investments include shares of mining companies, gold certificates, exchange-traded products, and gold options, forwards, and futures.
Real Estate Takes Work But Has Great Tax Benefits
The purchase of real property is one of the most popular methods of storing wealth, and many billionaires have a long list of buildings in their portfolio. These may include everything from residential properties to commercial projects and industrial facilities. In each case, these investments can generate revenue and deliver tax advantages.
Though real estate investment is certainly not risk-free, many types of real estate are considered relatively safe. Over time, the market tends to appreciate, and property ownership can practically pay for itself through tax advantages.
This doesn’t apply to highly speculative real estate projects and developments built without thought to location and timing. As with any investment, real estate returns are entirely dependent on the quality of the underlying asset.
Where Do Billionaires Keep Their Money?
While all of these options give billionaires a place to keep a portion of their wealth safe from market volatility, it isn’t all good news.
The downside to these sorts of investments is that lower risk means lower reward. There is concern that returns won’t keep up with inflation, which could reduce buying power over time.
Balance is key to preserving wealth without facing excessive risk of capital loss. That’s why billionaires have huge amounts invested in their own company stock in addition to other, safer asset classes.
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.