How do millionaires invest their money?
It’s a relevant question because, almost by definition, if you’re a millionaire, you’re doing something right.
Of course, being a “millionaire” today doesn’t make you filthy rich. That status factors in not just the money in your bank account but all of your assets, including your home equity and your portfolio.
According to the latest Global Wealth Report that investment bank Credit Suisse publishes annually, there are about 25 million people in the U.S. who qualify as millionaires.
Still, that puts the percentage of Americans with millionaire status at less than 8% and the portion of U.S. households with millionaires in them at around 10%.
These people are clearly doing better than the vast majority of Americans in terms of wealth.
That brings us back to my original question: How do these individuals invest their money?
Survey Says…
Well, this week I came across a survey that was conducted in 2020 and 2021 to tell us exactly that, in detail. A study based on the survey results was published this month in the Journal of Financial Economics.
The study’s authors surveyed about 2,500 Americans, each of whom reported at least $1 million worth of investable assets. About 18% of survey respondents reported assets of $5 million or more, and 4% said they had assets of $10 million or more.
Here’s the breakdown of where they have their money…
- 44% in U.S. stocks
- 8% in international stocks
- 4% in U.S. government bonds
- 10% in other U.S. bonds (presumably corporate bonds)
- 6% in real estate
- 2% in international bonds
- 2% in commodities, options, hedge funds, private equity and venture capital funds
- 4% in structured products (more on these below)
- 20% in cash and cash equivalents, like certificates of deposit and money market funds.
If you take out the cash component (which can be just money in your checking account), you get an investment allocation that looks roughly like this…
I sent the study’s results to Alex to get his thoughts.
“This asset allocation is not radically different from the Gone Fishin’ (Oxford Club) allocation,” Alex noted.
However, he said, 10% in international stocks is too little, because the U.S. is less than one-quarter of the global economy.
Also, there is no allocation to TIPS, or Treasury Inflation-Protected Securities, Alex pointed out.
TIPS are an essential part of the Oxford Club asset allocation model, and they’re particularly relevant right now because they’re indexed to inflation to protect investors from the decline in purchasing power that occurs during times of high inflation.
[Editor’s Note: A version of this article was published in Oxford Insight last week, which includes the full Gone Fishin’ portfolio allocation. Oxford Insight is a publication reserved for Oxford Club Members.]
And structured products? These are customized investments that often use derivatives and bonds to create a certain income stream or some other unique result. They’re created by investment banks and sold to wealthy people.
Yet the Securities and Exchange Commission has been looking closely at some of these products due to their often-excessive fees and lack of transparency.
“No one needs ‘structured products,’ which are just a Wall Street payday,” Alex told me.
Finally, private equity and venture funds. “Those are risky and illiquid,” Alex said. Best to avoid them.
So there you have it. American millionaires are basically on the right track with their investments, though a few tweaks would likely improve their long-term results.
Invest wisely,
Matt