If you’re a millionaire, you’re doing something financially right. So, how do millionaires invest their money?
According to the latest annually Global Wealth Report by Credit Suisse, there are about 25 million people (about 8%) in the U.S. who qualify as millionaires. These people are clearly doing better than the vast majority of Americans in terms of wealth.
Here is the breakdown of where they have invested their money:
52% in stocks (e.g. individual stocks, ETF’s, managed stock funds)
16% in bonds (e.g. government bonds, corporate bonds)
6% in real estate
2% in commodities, options, hedge funds, private equity and venture capital funds
4% in structured products
20% in cash and cash equivalents (e.g. certificates of deposit and money market funds)
While these millionaires are basically on the right track with their asset allocation, I would suggest some changes to improve results and risk.
First of all, I would not allocate any money in structured products and would bring this asset class to 0%. Structured products are an invention by investment banks on Wall Street. These expensive products, often using derivatives and bonds at excessive fees with little transparency, are mostly sold to wealthy people. Nobody really needs them.
Second, I would add crypto currencies and crypto products to the asset allocation. They are a new but important asset class that should be part of a diversified portfolio.
Third, I would reduce my stock and bond holdings and in return increase my real estate stake.
Fourth, the cash holding should depend on the following: 1. The amount of money I would for necessary purchases and expenses in the next 3 years (e.g. Mortgage repayment, new car, tuition fee for children etc. 2. Fire fund that covers all my living expenses for 6-12 months 3. Some cash to take advantage of excellent investment opportunities that come along from time to time (crash or bear market, business or purchases.
My asset allocation would be slightly more flexible and would be determined by ranges:
30-50% in stocks
10-20% in real estate
10-15% in bonds
2-5% in commodities
2-5% precious metals
2-5% in cryptos
0-5% others financial products (e.g. options, futures, CFDs, hedge funds, private equity, venture capital)
0-5% others (art, wine, stamps, coins)
10-20% in cash and cash equivalents (including notes and bills)
Build a smart, diversified portfolio of different asset classes. Review yearly, half-yearly or not more than quarterly and adjust your portfolio to bring it back into the ranges by selling the assets that are above the set range and buying the assets that have fallen below.