In 2021, according to the World Inequality Lab’s annual World Inequality Report, billionaires saw their share of wealth increase at the highest rate on record. From 1% in 1995 to 3% in 2021, billionaires have amassed more wealth than ever before.
Most people cannot imagine what it’s like to be a member of the global billionaire class. An annual interest payment of $10 million without ever having to touch the principal would result from a 1 percent return on $1 billion.
Consequently, the ways in which billionaires invest their money shows a range of options for the world’s richest.
Cash and its equivalent
Billionaires are often frugal. Usually, they don’t spend too much, since spending would prevent them from increasing their wealth. They spend on necessities and some luxuries, but they also save and expect the rest of the family to do so as well. Some billionaires, such as Bill Gates, Aliko Dangote, Warren Buffet keep their cash in highly liquid forms or highly liquid cash equivalents.
A billionaire opens an emergency account before investing. They bank differently. They probably also have a private banker who manages their wealth, in addition to handling any bank accounts they have. They don’t need to wait in line at the bank.
Furthermore, they hold cash equivalents, which are almost as liquid as cash. Some examples of cash equivalents include money market mutual funds, certificates of deposit, commercial paper, and Treasury bills.
Global Equities and Stock Funds
Although many billionaires do invest in the stock market, we should keep in mind that billionaires are in substantially different circumstances than us. One reason is that they can afford to take more risks. A 100% loss of investment is unlikely to threaten their financial security or comfort in the future. With so much wealth, they are able to take on more risks.
One or more major companies may be controlled by ultra-rich investors. However, many billionaires only hold a handful of equity securities. Since index funds earn decent returns and don’t require management, they are popular among investors. In addition, they are well diversified and have low management fees.
The passive income dividend-paying stocks provide is also appealing to billionaires. In addition to capital appreciation, some investors are more concerned with generating current income than capital appreciation.
Since 2004, Gates has earned more than $50 billion in dividends and stock earnings, including a $3.3 billion payout from Microsoft as he owns about 1% of the world’s largest software company.
For many years, billionaires have favoured real estate investing as their best place to keep their money. A primary residence is initially purchased and then other residences, usually for tenants, follow. Having bought some personal real estate, they have started buying commercial real estate, including hotels, stadiums, bridges, and office buildings.
Many billionaires including Larry Ellison own large real estate portfolios. In recent years, Ellison has invested steadily in real estate, building up a portfolio worth over $1 billion.
As soon as these billionaires have established themselves as buyers, real estate agents bring them deals, and getting financing becomes easier.
Millions of dollars are invested in real estate by large investors. It’s not an investment you should depend on for cash flow, but it’s a good one for the long term and a tried-and-true investment for billionaires because real estate provides passive income.
Steven Cohen and Ray Dalio have joined the crypto craze by investing their hard-earned cash in bitcoin and other digital currencies in the hope of diversifying their investment portfolios. Elon Musk, the world’s richest man, has exposure in Bitcoin, Ethereum and Dogecoin.
Bitcoin has gained more than 20,000,000% since 2011, making it one of the most profitable investment assets of all time.
If you want to make your fortune in crypto, you’ll have to be willing to accept significant risks, whereas some billionaires like Warren Buffet, James Dimon have declined taking on such risks. In spite of this, note that only a small portion of the world’s richest use their wealth to participate in such markets.
Private equity and hedge funds
Hedge funds and private equity funds are not for everyone unless you are very rich. In contrast, private equity funds are generally invested in by large institutions such as universities or pension funds.
A qualified investor can be an individual or an organization, but they must meet certain regulations. Public equity funds must follow more regulations than private equity funds in other areas. Some ultra-rich investors invest in private equity if they are accredited investors.
Private equity is not the same as hedge funds. In order to earn outsized returns for their investors, hedge funds pool funds and pursue several strategies. Fund managers invest in hedge funds based on their belief that it would produce higher short-term profits.
As well as being stores of value, commodities, such as gold, silver, mineral rights, or cattle, are also hedges against inflation.
Naguib Sawiris, an Egyptian billionaire who invested in gold mining earlier this year, has set up a $1.4 billion fund to hold his gold mining investments and pursue new opportunities in the sector, which he says is in need of consolidation.
Aliko Dangote, Africa’s richest man, holds significant exposure to cement, and he also holds interests in sugar, salt, oil, fertilizer, and packaged food.
Some billionaires, invest a portion of their money in other alternative investments, such as fine art, musical instruments, and rare stamps. Additionally, the ultra-rich own intellectual property rights, such as songs and movies. Such investments can be highly lucrative.
David Geffen is the founder of DreamWorks Animation, and he owns art worth $1.1 billion. In 2006, he sold four pieces of contemporary art from his collection reportedly for $421 million. Wealth-X reports that Jackson Pollock sold an artwork titled, “Number 5, 1948” for $140 million, and Willem De Kooning sold “Woman III” for $137.5 million.
In conclusion, billionaires have a variety of investment philosophies, so generalizing about where they keep their money is difficult. For the world’s wealthiest, all of the above are legitimate investments.
Many of them seek to reduce the risk of their investments, so they prefer diversified portfolios. Combining more than one investment will increase wealth.