One of the most common recommendations to build wealth is investing in stocks. Based on how the wealthiest Americans invest their own money, that’s good advice.
Bank of America Private Bank recently conducted a study of Americans with at least $3 million in investable assets. It asked younger multimillionaires from 21 to 43 and multimillionaires from 44 and up about their own portfolios and the greatest investing opportunities.
The older group chose much more traditional investments. Here’s what they believe are the five best growth opportunities.
1. Domestic equities
Stocks, and in particular the U.S. stock market, are the No. 1 investment by a wide margin. Among the older group of multimillionaires, 41% believe that domestic stocks are one of the best places to grow your money.
Stocks are also the biggest asset in multimillionaires’ portfolios, on average. They make up 55% of the portfolios of multimillionaires 44 and older, and 28% of the portfolios of investors aged 21 to 43.
There aren’t many assets that have done as well as stocks historically. The long-term returns of the U.S. stock market average about 10% per year for decades. You can invest in stocks through a brokerage account, including individual retirement accounts (IRAs) that can save you money on taxes.
2. Real estate investments
As mentioned, older multimillionaires like traditional investments. Nearly a third (32%) think real estate is a great growth opportunity.
There are several ways to invest in real estate. You could buy a property and either rent it out or flip it. Both of those options have their challenges and require a lot of money upfront, but they work out well for some investors.
Another option is to invest in real estate investment trusts (REITs) that own income-producing properties. You can buy shares in REITs just like you’d buy shares of stocks, so this is a much easier way to add real estate to your portfolio.
3. Emerging market equities
Multimillionaires are bullish on emerging markets. One quarter (25%) of multimillionaires 44 and older called emerging market equities one of the greatest opportunities for growth.
An emerging market refers to a developing country with an economy that’s growing quickly. Many of the countries that are classified as emerging markets are low-income countries, and their economies can be volatile.
There are emerging market funds for investors who want to make this part of their portfolio. Just keep in mind that these investments tend to be much riskier than investing in the U.S. stock market.
4. International equities
The older group of multimillionaires are big on investment opportunities abroad, with 18% believing that international equities are a growth opportunity.
International equities are any stocks listed on exchanges outside an investor’s home country. They include emerging markets, but also more developed and stable economies.
While many investors stick to the U.S. stock market, it’s generally recommended to make international stocks part of your portfolio, too. A report by Vanguard suggests going with 60% domestic stocks and 40% international stocks.
5. Private equity or direct investment into companies
This is a tie, as 15% of older multimillionaires called private equity a great growth opportunity, and another 15% said the same about direct investments into companies.
Both of these involve investing in private businesses. Private equity investing is normally done through private equity funds available to wealthy investors. With a direct investment, you invest in the company yourself.
These are risky and expensive (in the case of private equity). Private equity funds often charge large fees. A popular fee structure is “2 and 20,” where investors pay a 2% management fee and a 20% share of investment profits.
You don’t need flashy investments
There’s a common misconception that wealthy Americans have access to far better investments than regular people. That couldn’t be further from the truth.
Most of the investments listed above are available to anyone. The only exceptions are private equity and direct investments into companies. The assets that make up the largest portion of multimillionaire portfolios are the classics: stocks, bonds, and cash.
Ultimately, it’s your portfolio. But you can’t go wrong with investing in stocks for growth, bonds for stability, and possibly real estate, if it interests you.
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