Many people believe there's a secret strategy to becoming a millionaire. Does the ultra-wealthy have magical insight into how to make money? And do they know what investments to avoid so they don't lose money?
Everyone measures financial success in different ways. You can be a millionaire on paper, owning real estate, helicopters, yachts, fine art, luxury cars and elite homes, but have very little cash. But there are also such things as retirement accounts and mutual funds.
How do millionaires make, keep and grow their money?
The ultra-wealthy are financially astute and know what to do with their money to make more of it. And as importantly, millionaires also know what not to do so they don't lose their wealth.
Millionaires understand the importance of investing and saving and taking calculated risks to increase their wealth. They may think differently from the average small investor and look for opportunities to add to their portfolios outside typical avenues.
We've all heard stories of lottery winners becoming multi-millionaires from a winning ticket. But, these success stories often lead to associated reports of many lottery winners eventually losing their millions, and quite quickly. It's baffling to understand how that can happen.
Why are most people not able to hold on to their millionaire status?
The answer is easy.
Lottery winners dash off and buy a huge house, expensive cars and other material goods. They make poor investment choices. But self-made millionaires and those from inherited wealth understand money management, and most of them are frugal with their spending.
There are over 20 million millionaires in the United States, and it's easy to assume they inherited their wealth. But that's not the case. Over two-thirds of millionaires earned their wealth from becoming entrepreneurs, and only 20% of the total millionaires inherited their millions.
So what don't millionaires invest in? What things do they not do to protect and grow their wealth? And will that information help us understand how to become a millionaire, and can we learn how to make millions from investing?
This post outlines 5 things that millionaires don't do, areas where they don't invest and money traps they avoid.
1. Millionaires Don't Limit Investments To One Market
Millionaires realise the potential of expanding their investment portfolio into different industries, various countries and emerging markets.
Diversity is essential to success.
The public often assumes that investment is preferable in wealthy, tier 1 countries such as the United States and investing in Europe. But millionaires know there is a wealth of opportunity from exploring the potential for investing in developing countries such as Indonesia, Singapore and Chile.
Millionaires are also keen on investing in start-up businesses, especially high-growth industries such as tech companies. They constantly seek to diversify their portfolio with a combination of low, medium and higher-risk investments.
Restricting investments to one market is a massive mistake if you want to make your money grow.
2. Millionaires Don't Waste Money Trying To Compete With Others
Millionaires have well-planned, long-term investment strategies and goals, and, unlike many smaller investors, they do not concern themselves with other investors' portfolios.
Millionaires plan for 10-20 years ahead, and they stick with the investment strategies they know will build their personal wealth. Regardless of periodic economic downturns, they do not shift financial strategies nor try to follow the crowd.
Small investors may prove their wealth by buying a bigger and better car to outdo their neighbour, colleague or friend. Millionaires utilise the power of financial compounding for their investments and, once they reach an investing goal, they may celebrate their achievements with a few toys.
Therefore, don't spend your investment profits. Set a long-term goal for your investment portfolio and compound your gains before treating yourself to some new toys.
3. Millionaires Don't Invest In Intangible Assets
Most people associate investing with stocks and bonds.
This assumption may be because of higher liquidity and a smaller entry price compared to tangible assets. But, millionaires know the value of physical assets and allocate most of their investment funds into tangible assets such as real estate (private and commercial), fine art, gold and land.
Smaller investors tend to avoid high priced physical assets because of lack of liquidity and higher-priced entry points. But millionaires understand that physical assets are at less risk of market swings and are almost always profitable long-term.
Again, millionaires utilise diversity, so if they have a small percentage of intangible assets such as stocks and bonds, a stock market crash won't impact their wealth overall.
Limit your investments in intangibles and seek opportunities for investment in a range of physical assets.
4. Millionaires Don't Assume Their Portfolio Is Balanced
Millionaires consistently assess and rebalance their portfolio, ensuring a diverse range of investments.
Smaller investors often fail to rebalance their portfolio, and consequently, their investments may be overly-weighted in one or two areas. If a particular market crashes, an unbalanced portfolio is vulnerable and could seriously impact investors' wealth.
A balanced portfolio could be a mix of cash, bonds, stocks and physical assets.
Most millionaires may rebalance monthly or weekly and even daily if they have a significantly sized portfolio. They may not undertake this task themselves but will assign the job to an investing expert.
Commit to rebalancing your portfolio as often as possible as a way to protect and grow your financial wealth.
5. Millionaires Do Not Limit Their Investments To Public Markets
Small investors may follow the crowd and invest in widely available public markets.
But millionaires seek out opportunities for high-growth, private investments. They may invest in start-up businesses, for instance, as an angel investor, private equity or business ownership. Private equity investments can generate higher returns, making it an attractive prospect to add to a millionaire's investment portfolio.
Seek out private opportunities. They could present a higher risk, but the rewards can be significant and may be shorter-term gains.
Recap Of 5 Things Millionaires Don't Invest In
Millionaires make, keep and grow their millions by investing wisely. They are financially literate and understand that investing is essential as part of their strategy to increase their personal wealth. As part of their financial strategies, they also understand the importance of savings and reducing outgoings.
Millionaires make sure they invest well and save wisely, increasing cash flow and reducing the outflow of cash. This strategy could mean that they may live below their means until they achieve the financial goals set out with their investments.
Smaller investors may start spending before reaching a longer-term goal of more stable investments, providing a regular return. Then, should something go wrong, they are in trouble financially.
If you want to be a millionaire, take note of the 5 things that millionaires don't invest in and follow their blueprint for financial success.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Successful investing takes a lot of knowledge and skill and may not be suitable for all investors. Investing involves risk and the possibility of a loss of capital. There are no guarantees for profiting from investing, and it's advisable only to risk what you can comfortably afford to lose.
How do I know a good investment?
Focus on diversification and only invest what you can comfortably afford. A good investment for one person may not be a good fit for another. It depends on your risk tolerance and your financial goals. Avoid impulsive investing. If something looks too good to be true it probably is.
What are liquid assets?
Liquid assets are things that you can sell for a cash exchange, such as fine art, gold etc.
What are the best assets to own?
Every investor has different interests and financial needs, but typical assets may include the following: real estate - commercial or private (including rental homes); business assets - tangibles owned by the business; collectables - fine art and even NFTs are now collectables; commodities - gold, silver, etc; currency assets - for instance, government bonds; paper Assets - fixed income (bond funds, US Treasury P2P lending etc) and stocks.