Have you ever wondered where wealth is held by the world’s richest individuals?
When you possess billions of dollars, relying solely on traditional bank accounts to safeguard your entire fortune becomes a risky proposition, as it fails to maximize the growth potential of your wealth. This is precisely why the ultra-rich engage in a practice known as diversification, strategically allocating their funds across a multitude of accounts and investments.
Now here are the most common places where super wealthy people keep their money.
1. Stocks
Throughout history, stocks have consistently demonstrated the potential for delivering superior returns compared to other conventional investment options such as savings accounts and bonds. This is precisely why a significant number of affluent individuals opt to allocate a substantial portion of their wealth to the stock market.
Warren Buffett exemplified this strategy by advising his trustee in 2014 to invest a staggering 90% of funds into an S&P 500 index fund. While investing in stocks carries inherent risks, the potential for substantial profits, particularly over the long term, makes them an appealing choice for wealth accumulation.
According to J.P. Morgan’s research, the S&P 500, a widely followed stock market index comprising large-cap U.S. companies, has generated an impressive average annual return of approximately 11% since 1950. This historical data underscores the potential for robust growth and wealth creation that stocks have historically offered investors.
2. Bonds
Furthermore, Warren Buffett provided guidance to his trustee to allocate the remaining 10% of funds to short-term government bonds. Government bonds can be regarded as a means of lending money to the government in exchange for periodic interest payments. These investments are typically considered secure due to the backing of the federal government.
The appeal of government bonds lies in their reputation for stability and reliability. Since they are supported by the full faith and credit of the government, the risk of default is significantly reduced. As a result, wealthy individuals often embrace government bonds as a conservative component of their investment portfolio.
By investing in government bonds, affluent individuals can benefit from a steady stream of interest income. The government, as the issuer, consistently makes interest payments to bondholders, providing a reliable and predictable source of earnings.
3. High-yield savings accounts
Placing funds in a high-yield savings account is a secure and reliable method to generate a respectable return on your money.
In the current financial landscape, these accounts often offer an Annual Percentage Yield (APY) of approximately 5.00%. This rate significantly surpasses the national average of a mere 0.39% provided by the Federal Deposit Insurance Corporation (FDIC) for regular savings accounts. By opting for a high-yield savings account, individuals can benefit from a substantial increase in their earnings potential.
One of the noteworthy advantages of high-yield savings accounts is their FDIC insurance coverage. This means that deposits of up to $250,000 per individual (or $500,000 in joint accounts) are safeguarded in the event of a bank failure. This insurance provides peace of mind, assuring depositors that their money remains protected and secure.
The wealthy are drawn to high-yield savings accounts due to their low-risk nature and the liquidity they offer. By allocating a portion of their financial resources to these accounts, affluent individuals can ensure that their money is readily available when they require immediate access to cash.
4. Certificates of deposit (CDs)
A certificate of deposit (CD) is a specialized savings account that requires you to deposit money for a predetermined period, during which you typically cannot access the funds without incurring a penalty. However, during this time, your money accrues interest.
Frequently, affluent individuals turn to fixed-rate, federally insured CDs as a reliable and low-risk avenue for earning a guaranteed return on their investment.
The concept behind a CD is straightforward – you deposit a specific amount of money into the account, and in return, the bank promises to pay you a fixed interest rate over the predetermined term. This fixed interest rate ensures that the return on your investment remains consistent and predictable, offering a sense of stability in an ever-changing financial landscape.
5. Businesses
A significant number of individuals with immense wealth possess business interests, either as entrepreneurs who have built their own enterprises or as investors in various companies.
Investing in businesses presents an opportunity to generate substantial returns on investment. However, it is crucial to acknowledge the inherent risks associated with such investments, as businesses can face uncertainties and challenges that may lead to failure.
The wealthiest individuals often find themselves owning companies and reinvesting their profits back into their business ventures. This approach allows them to capitalize on the growth potential of their enterprises while actively participating in the development and expansion of their entrepreneurial endeavors.
