Where and how do the super wealthy invest?

[F.I.R.E User]

Super wealthy meaning FatFire?

 

[Canoeboy]

Some old money multi-billionaire families I know own companies with diversified business holdings run by non-family professionals. It’s essentially their own large mutual fund that evolved from great-great-great granddaddy’s startup. They realize others can run the business better, thus they are mostly hands off. Just send good dividends, continue to grow equity for future generations, and keep the company name out of the news.

 

[WhenIsItTime]

I only know of two billionaires in my region. The first has most of his assets in residential rental properties. That's how he made his billion in the first place.

The second has been buying farmland. Lots of farmland.

Farmland is trendy. World is not making more. Can produce income from renting to farmer's, harvesting wood, rent to hunters, etc. A buddy works at a firm that has returned 5% income to clients last many years. Separately, Bill Gates owns a ton.

 

[marko]

How did the original rich ancestors set up the trust funds for their descendants? They did not trust that the wealth could be properly managed.

To a certain extent yes. But a lot of it had to do with taxation back when income tax was first put in place. The wealth was already being managed professionally. Generation skipping and all that and making sure that junior didn't ever get his hands dirty.

 

[ncbill]

Trendy it may be, but yet in the past there have been massive crashes in the value of farmland.

 

[yclipse]

In my area of the country, a few wealthy people I know or know of (one a successful lawyer, one a contractor) regularly put their excess money into purchases of land, usually vacant land that has minimal upkeep.

I've heard it more than once: "They're not making any more."

 

[street]

In my area of the country, a few wealthy people I know or know of (one a successful lawyer, one a contractor) regularly put their excess money into purchases of land, usually vacant land that has minimal upkeep.

I've heard it more than once: "They're not making any more."

I have always done well buying land. I buy bare land that has no houses or improvements to speak off. Most people won't invest in dirt, but I have always done well.

 

[kgtest]

Very interesting article.

With the fees that the billionaires would have to pay a hedge fund, they could hire people to run a personal hedge fund. One percent of a billion is $10 million/year, and these men have several billions. The tens of million pay a lot of salary and office rent.

You make a very valid point. I had a large financial "issue" when I bought my home. I had a lot of large and dangerous tree's in my yard that needed to be removed and dealt with. I started getting quotes and for one tree removal is was over $2,200. I received multiple bids. Then I decided I was going to do it myself. I felled that one tree and it was the beginning of starting my own company. I realized it was cheaper to file the Article of Incorporation, obtain my license from the state of Minnesota, purchase insurance, the equipment to complete the work, and then finally hire the guys who knew how to climb and fell trees. I did this all in the middle of the pandemic, when many were afraid of going to work. Then, I felled some neighbors trees to recoup my costs. I paid the wages of my workers and earned a profit for myself, received a tax break for my risks and all in all came out ahead after my first year in business and 26 tree jobs. Now if you were my friend and just saw my nice car, and nice home...you might tell me something like "man you are lucky" or "must be nice to be you"...

I worked hard for my luck...not much luck in getting to work when the sun rises, trying hard and going to bed when the sun goes down. I made my first million by 40. It wasn't easy. They say the second million will be easier. I'll let you know when that day comes.

I do also spend a lot of time in front of my investments, talking to people about investing, and making sure I have a well tuned plan and that I am always in tune with the markets.

After all, you are what you eat.

 

[kgtest]

I owned a small business and eventually sold it. Started it from dirt, ran it for 24 years. When I finally sold, about 20% of my wealth was equity in the business. Another 20% was equity in the building that it was housed in that was owned separately in an LLC I had and the other 60% was from saving and investing until I retired in 2020 at 57.

This makes a lot of sense. I've met people who have retired off of just the building's rents.

The dentist that owns his own building is wealthier than the dentist that doesn't. Real estate is solid, but investing in people is another great way to grow wealth.

In reality, the more people you get to buy into your idea, the wealthier you will become. Think youtube stars and influencers. They rely on obtaining "views" "clicks" "likes" "reach" "influence" etc. Will Smith said that his success was modeled after out-touring Tom Cruise. He would literally scout Cruise's tours and appearances and do one or two more than he did. It worked.

I met someone who was QUITE wealthy just owning multiple forums like the one we are using today. If you create a solid product, the profits will follow.

 

[Stormy Kromer]

Trendy it may be, but yet in the past there have been massive crashes in the value of farmland.

Land here is selling for $12,000 per acre and renting for $200 (after property tax), Less than a 2% return in ordinary income, compared to a typical S&P index fund which is mostly LTG income.

Farmland has a great long term result because owners just don't sell it, they hang onto it forever. Then the kids fight like hell when you're dead.

 

[gooddog]

Bill Gates had an investment firm created that handles just his investments, and a few friends. He then invested heavily in land, and I'm thinking he is the largest private land owner in the nation now. Says something about where he thinks the economy is headed maybe.

 

[street]

^ ^rent farmland isn't going to make you rich. The equity and value are what will make you money in the end. Owning land isn't all about getting rich from owning land it is the enjoyment you can have from it.

I could be wrong but a pay day for a business is the day it sells. Of course, you make money as you run it, but it is the increased value and what it is worth when you sell.

If owning land is just thought as an income source some will be very disappointed in their investment in dirt. Land is a long-term investment tool and need to buy right and what type of land to buy.

 

[luckydude]

If owning land is just thought as an income source some will be very disappointed in their investment in dirt. Land is a long-term investment tool and need to buy right and what type of land to buy.

+1

Buying land for the sole purpose of income generation is not an ideal investment. This is especially true if financing is required. There are better ways to deploy one's capital for that purpose.

 

[luckydude]

Bill Gates had an investment firm created that handles just his investments, and a few friends. He then invested heavily in land, and I'm thinking he is the largest private land owner in the nation now. Says something about where he thinks the economy is headed maybe.

I think John Malone is the largest private landowner with 2.2 million acres. Ted Turner isn't far behind.

 

[matjung]

I've often wondered, how to the super wealthy invest? Do they heavily invest in the market? Real Estate? Buy their own corporation? If so, how? I could be wrong, but I somehow doubt they self-manage their assets. I wonder if they are active traders or buy and hold.

Of course, maybe there is no general answer, each uses a different method or strategy.

At least some of them must be successful with whatever they are doing. I wonder if they know something I don't.

Any thoughts?

I think the super wealthy are doing both.
First they make us invest into their business (Microsoft, Amazon, etc.)
Second, they make us buying their products (Tesla, Apple, etc)
There are not so many super wealthy walking around.
So I think, most of them were lucky.
Some less super wealthy operate their own Family Office or Multi Family Office.
You recruit people who do the asset allocation for you.
Money goes into funds. It will be the problem of the fund manager to trade from Morning to Evening and Beyond.
And IT guys monitor the strategies of Trading Bots.

 

[Closet_Gamer]

There are many paths to being very wealthy. One of my favorite quotes is from the movie Secret of My Success: "He earned his money the really old fashioned way...he inherited it."

But truthfully, I think that does a dis-service to many very wealthy people.

Buffett, Bezos, Gates, Musk, Ellison, Jobs ... none of these people made their money by investing in the S&P 500. Far from diversifying, these and other wealthy people stayed quite concentrated in businesses they had a huge hand in starting and then did not sell out early when they could have taken $100m and put it T-bills.

Instead they held on and built empires.

They almost all took big risks, had major failures, worked like crazy for decades, and proved themselves to be exceptional leaders. The leaders atop many large corporations are no less exceptional than the best QBs in NFL. These folks are just different. The CEO of my company's largest division has the highest EQ of anyone I've ever met. He's brilliant and he got there through 30 years of building huge, profitable enterprises. Along the way he's made life better for 100K employees.

Closer to home, while I'm a big believer in diversification of take-home assets, the reality is that much of my wealth has come from being very concentrated in a large successful company.

On a much smaller scale, I've been an intra-preneur and have started three businesses for my corporation. Along the way I've conceived and launched around 15 products. The businesses & product lines I've helped start have delivered around 20% of my company's organic growth over the last 15 years. If you've invested in the S&P 500, you've gotten a little bit of that growth.

This has been a very high risk, high stress career path. Some successes, several failures. Being shot at by narrow minded finance people and internal competitors every step of the way. Its a testament to the innovative culture of the company that I've never been shot out of my saddle for a failure --- yet.

I never left, I never gave up, I held onto options, I invested heavily in our deferred compensation plan. This concentration has fueled my wealth creation at least as much as my investing.

And yet, I will never become ultra-high net worth because I'm not exceptional on the level of our CEO. Nor do I have the taste for empire that will make me work until I'm 80 to drive the bank account to $100M.

Its a beach house in my 50s for me.

Don't get me wrong...I actually have a real problem with the levels of wealth concentration in our society. But we should acknowledge that a lot of wealth creation is from concentrated, long-term risk taking and innovation.

 

[matjung]

There are alot of general pearls of wisdom that get discussed --

+ You don't need someone to manage your money
+ Invest in a good investment and stay the course in good times and bad
+ Don't try to time the market
+ Don't take risks
+ Don't be afraid to take risks
+ etc

I just wonder if this is how people who have accumulated (or retained) wealth manage their affairs. I realize there is probably no answer to the question, but any insight is helpful since I have no feel for how people who are very good at managing money tend to do it.

My opinion about this.
The wealthy invest into their own good investment.
I met a few millionaires who went from Hero to Zero.
How did they loose money.
By investing into other peoples Good Business Ideas.
By not having a plan for how to invest other peoples money.

That happened between 1998 and 2002.
I was a junior student assessing investment opportunities for a venture capital company.
The VC company got spammed with both. People with Ideas. And people with Money.
The money went into Ideas and the Ideas went nowhere.

The problem in that time was.
The people with ideas did not know how money helps turning an idea into a successful business.
When I look at some IPO from last year then it seems that some people still don't know how to invest other peoples money.
Is it appropriate to bash an IPO? I'll do it anyway.
Coursera Inc. Went public last year.
The money from the new shareholders is hanging around in the bank account.
Do they make money? Not yet.
Will they make money in the future. Hard to believe.
In a huge market they have a tiny market share.
The founders are now millionaires.
Are they also heading from Hero to Zero?

 

[Stormy Kromer]

^ ^rent farmland isn't going to make you rich. The equity and value are what will make you money in the end. Owning land isn't all about getting rich from owning land it is the enjoyment you can have from it.

I could be wrong but a pay day for a business is the day it sells. Of course, you make money as you run it, but it is the increased value and what it is worth when you sell.

If owning land is just thought as an income source some will be very disappointed in their investment in dirt. Land is a long-term investment tool and need to buy right and what type of land to buy.

Well said. I just moved back to my family farm that my grandpa bought in 1926. 240 acres of good black dirt. It took my lifetime to pay for it and now it provides about half my living expense. It feels good to be on the land, I can't explain it but I think some here would understand. It's 10 below zero this morning and I'm looking out at where I'm going to plant a new orchard and til a new garden.

As for an investment, its been a wild ride these last 96 years. Grandpa bought it in 1926 at land's peak price. Then came the depression which lasted over 10 years in farm country and he almost lost it to back property taxes. Times got better then the farm crisis in the 1980's caused many farm owners to go bankrupt due to land purchases...now farmland is well into record territory. To me, its my farm and not for sale. Never will be. Watch an episode of The Ranch sometime, that show does a good job of telling how a piece of land can really own you, and your family.

New land on the market is being bought up for record prices by investors. 1031 exchanges are common. I'm guessing that if interest rates rise to the point where investors can make more than farmland yields (about 2%) that they'll look elsewhere. But, I've been wrong before.

 

[braumeister]

I think John Malone is the largest private landowner with 2.2 million acres. Ted Turner isn't far behind.

This is an interesting list:
Top 10 Largest Private Land Owners in the US

I especially like the line about #2, Archie "Red" Emmerson:

Despite being 89 years old, Red drives his pick up truck to work himself before 8am, 6 days a week

Gates just owns farmland. Surely a lot of it, but not that much in comparison.
How Much Land Does Bill Gates Own?

 

[pjigar]

Well said. I just moved back to my family farm that my grandpa bought in 1926. 240 acres of good black dirt. It took my lifetime to pay for it and now it provides about half my living expense. It feels good to be on the land, I can't explain it but I think some here would understand. It's 10 below zero this morning and I'm looking out at where I'm going to plant a new orchard and til a new garden.

That was me a year ago when I moved to our modest ranchlet. We bought it in 2014. We could never afford it now.


Yes, it is good to be on the land. It make me smile every time I am outside the house.

 

[street]

Stormy Kromer, you know the feel of being part of that land and how rewarding working the land is. Land in most cases will cost you money, just like any other purchase you make (home, car, business) etc.

I have told a story before here that in the very early 80's didn't have much but had a job. I bought an irrigated farm. I was turned down by one bank, but I finally got the money. I rented it out and worked a small part of it myself. I owned it for 25 years and sold it for 14 times more than I had paid for it including the financing. I had it paid for many years before I sold it though.

I stuck my neck out as far as it could go, and it was a very rewarding time in my life owning that dirt. I get depressed when I think about that I sold it.

 

[street]

I think John Malone is the largest private landowner with 2.2 million acres. Ted Turner isn't far behind.

I been on one of Ted Turner Ranches and I would say he isn't making much of a return on his land investments but is a tax benefit for sure. He has a beautiful huge log home and the upkeep for his places is huge. He has many ranch hands and employees to take care of his property. The fencing on his place alone is never done and buys truckloads of fencing material a year.
His property is more about owning the beautiful landscape and the solitude of the land. You can drive all day and never leave his place, any way the one I have been on.

 

[retiredunder50]

It seems to me that one of the best return on investments for some of the ultra wealthy is strategically placed campaign contributions.

 

[braumeister]

You can drive all day and never leave his place

I used to have a car like that.

 

[disneysteve]

I have a friend who won a large judgement to the tune of about $68 million. Not sure if that qualifies as super wealthy, but to me it is.
He no longer works. Has a firm manage his money. He every once in awhile will build a multi million dollar spec house and flip it. They travel a lot and generally have no money worries.

There is a point where you simply have more money than you can reasonably spend without being ridiculous.


Suze Orman has always said that all of her money is in bonds. She also owns multiple homes.


If you have $50M and can get a 3% return on munis, that gives you $1.5M/yr to spend tax free. Unless you really want a life of opulence, that's quite sufficient to live first class with no money worries.