We generally struggle to decide on what we want to invest in when it comes to putting away our funds for the future. But what does the decision look like for a billionaire? If you could invest in almost literally anything you wanted, what would you choose to pour your money into? Billionaires have almost unlimited options when it comes to how they want to spend their money: be it spending it in pursuing their interests, speculating, making prudent investment choices, or all three at once. What assets, if any, do they buy? Are there any investment opportunities that are available to them, that are not available to us?
The answer is both yes, and no.
The world’s wealthiest often choose to pour the bulk of their wealth into compounding their fortunes. They also invest in assets that are not readily available to the masses – at least unless someone is willing to spend their entire fortune on one thing or another. At present, Elon Musk is the wealthiest individual on the planet, with an estimated net worth of $225.5 billion. According to publicly available information, most of Elon Musk’s investments are in his own companies: Tesla, SpaceX, X (Twitter), and the like. The same is true of Jeff Bezos; the founder of Amazon holds the bulk of his wealth in Amazon stock, with almost a 10% shareholding in the company. Larry Ellison, the fourth richest, holds most of his wealth in Oracle, of which he is the co-founder, chairman, and CTO. The fifth richest man in the world, Warren Buffet holds the majority of his wealth in his own company, Berkshire Hathaway. But that’s not where all their wealth is held: as astute business tycoons, billionaires are more aware than most of the dangers of putting all one’s apples in the same basket.
According to the Visual Capitalist, the assets that most of the world’s wealthiest choose to invest in are primary and secondary homes. This was revealed through a global survey that considered over 500 wealth managers, private bankers, and family offices with a combined worth of $2.5 trillion in assets. The individuals considered in the survey were all worth $30 million or more. It found that most ultra-high-net-worth individuals considered invested an average of 32% of their wealth in their primary and secondary homes. The attraction of real estate as an investment is an understandable one: the wealthiest in the world tend to hold their residential properties in affluent neighbourhoods that only appreciate in value. Land is almost always at a premium due to its extremely limited supply, and as long as it was bought at a fair price, is guaranteed to return more than what was invested in it at liquidation. In fact, according to reports, the average ultra-high net worth individual holds 3.7, or close to four homes. Additionally, an average of 18% of their wealth is held in equities and 14% is held in commercial property.
When it comes to investing in equities and commercial property, the wealthiest people of any economy always have more access to unique opportunities that the rest of the masses do not enjoy. For one, very wealthy people do not simply invest or spend their money on anything willy-nilly – well-thought-out wealth management plans created by trained and experienced professionals often help them decide what they should do with their money, and when. This expertise alone is quite inaccessible for everyone else, or at least accessible only at a very high price. This is also why wealthy individuals often have the power to make economic decisions that end up affecting everyone else, as they use their resources to collect as much information as possible about emerging opportunities that are unfamiliar to others and are riskier than opportunities that others would choose to entertain. Choosing what opportunities are actually allowed to play out in the market by directing their wealth at them often decides the fate of many who are not even aware of these investment decisions.
Very wealthy people also like to diversify their wealth: their properties are held across states and countries so that the relevant risks are as diversified as possible. Their equities are also held across different companies and industries and integrate their business interests vertically or horizontally as much as possible so that they act as security for each other. The opportunities that the rich are exposed to are also different due to the connections or the network they have. For most people, for instance, investing in a new business idea on the public market is only possible through an IPO, where everyone has to compete with each other to hold a stake in the new venture. However, millionaires and billionaires are very often approached personally by aspiring entrepreneurs and new businesses for their patronage. And since they have the wherewithal to invest, they often have the privilege of buying into a larger percentage of these new ideas before anyone else even gets to hear of them.
These investments into new ideas are riskier than investing in well-established organisations of course, and the possibility of a high multiple in returns can also be very high. However, as mentioned before, the rich tend to sow their oats far and wide in any case so that the overall risk to their portfolio is lower than it is for the average Joe. But of course, none of these are the boring options we are considering when we first ask the question, ‘What do the ultra-rich invest in’. Rather, what’s foremost on our minds are the images of vintage car collections, luxury goods, rare jewels, and paintings: all the trimmings of exotic wealth that we only see in movies and books. Are these simply not real investments for people that exist beyond cinema?
According to the report referred to above, these investments in luxury goods tend to make up about 3% of the average millionaire/billionaire’s wealth. These investments include art, watches, wine, classic cars, jewellery, luxury handbags, rare whiskey, furniture, diamonds, coins, and other rarer items of historical or cultural significance. Small wonder then, that Bernard Arnault, purveyor of luxury items – or the owner of the LVMH Moët Hennessy Louis Vuitton is the second richest man in the world. It’s important to remember that investing in rare and valuable items is very different from investing in gold or platinum for example, whose value in economic terms is dependant solely upon their value as a commodity. A rare piece of gold jewellery ‘rescued’ from its original owners is a different matter entirely. These rare items tend to retain their value over time due to their very rarity. However, they can also be risky investments due to risks in authentication, criminal interest, and the fact that some pieces of art for example are very delicate and subject to deterioration over time. The market for luxury investments is a thriving one nevertheless, as the art market saw prices increase by 19% in 2022, while the markets for luxury cars and luxury watches witnessed price increases of 25% and 18% respectively.
The bottom line, of course, is that the rich simply have more options when it comes to compounding their wealth that we simply do not have access to. This range of options, coupled with their abundance of wealth also increases their flexibility in terms of what they can actually invest in. It allows them to explore riskier opportunities and diversify their wealth into securities that can stand the test of time and human ingenuity. They also have fewer concerns about liquidity, allowing them to make financial decisions on a scale that can affect entire economies. Despite the flexibility they enjoy however, the ultra-wealthy too share the common man’s preference for security, which is why the majority of their wealth is tied to real estate and equity investments above all others.
(Theruni Liyanage)