If you’ve ever wondered, “Where do millionaires keep their money?” then you’re not alone. Many people are curious about the financial habits of the wealthy, and for good reason. Having a better understanding of how millionaires manage their money can help us learn from their successes and potentially improve our own financial well-being as well.
In this blog post, I’ll explore the various options available to millionaires for storing and growing their wealth. From traditional asset classes to more exotic investments, we’ll take a closer look at the strategies millionaires employ to protect and grow their fortunes. Whether you’re a millionaire looking for new ways to manage your money or just someone who wants to learn from the best, this post has something for you.
How Do Millionaires Invest Their Money?
To figure out how millionaires invest their money, I will be examining the three primary investment decisions that impact their returns (according to the late pioneer of institutional asset management David Swensen):
- Asset allocation: What asset classes do millionaires invest in.
- Market timing: When do millionaires buy/sell those assets.
- Security selection: How do millionaires choose which securities to buy within an asset class.
To do this, I will primarily be relying on Vanguard’s 2020 How America Invests study, which examines how affluent households (those with at least $500,000 in investable assets at Vanguard) invest their money. While not all of the households in this study are millionaires, the vast majority of them are. The median household in the study has over $1 million with Vanguard and those below the median have assets outside of Vanguard (i.e. real estate, non-Vanguard accounts, etc.) that make most of them millionaires as well.
With that being said, let’s address the first part of how millionaires invest—their asset allocation.
What Asset Classes Do Millionaires Own?
According to Vanguard, the asset allocation of a typical millionaire household is:
- 65% Stocks (Equity)
- 25% Bonds (Fixed income)
- 10% Cash
As you can see in the chart below, this allocation has been relatively stable over time as well:
This gives us a good idea of how millionaires tend to invest their money within their investment accounts on average. However, it doesn’t tell us anything about how those allocations change over time within households. Since the chart above is the aggregate allocation across all households, we don’t get to see any age-related allocation changes.
Fortunately, Vanguard provides a breakdown of allocation by household age in their study as well. We can see this in the table below which shows that households under 45 tend to allocate around 75% of their portfolios to equities, while households older than 65 allocate around 60% to equities:
What happens to the money that comes out of equities as these affluent households age? It goes into fixed income.
From the table above, we can see that the fixed income allocation of affluent households nearly doubles from age 50 to age 80. In other words, affluent households tend to go from 15% bonds to 30% bonds as they enter retirement.
But, what about other asset classes? Don’t millionaires invest a lot of money outside of stocks, bonds, and cash? According to the 2017 U.S. Trust Insights on Wealth and Worth, the answer is “Not really.”
As their study shows, high net worth households (those with over $3 million in investable assets) had the vast majority of their wealth in stocks, bonds, and cash, with less than 7% of their investable assets in alternatives:
This suggests that what we see in the Vanguard’s How America Invests study is representative of how the typical millionaire household allocates their money. They own typical asset classes and not all these exotic investments like the financial media might have us believe.
Of course, these studies exclude personal real estate and ownership of an individual business, both which can be significant. As Thomas J. Stanley and William D. Danko stated about the typical millionaire household in The Millionaire Next Door:
On average, 21 percent of our household’s wealth is in our private business.
Once we include ownership of private businesses and real estate, the typical millionaire household’s allocation to traditional asset classes like stocks and bonds is a bit lower that what has been advertised above.
We can see this more clearly if we look at the chart below (from VisualCapitalist), which highlights how household net worth is broken out across different wealth tiers. In it we can see the percentage allocated to a primary residence, vehicles, business interests, and much more:
As you can see, millionaire households have about 25% of their wealth in their primary residence and 15% in business interests (trust me I measured the bars). This implies that the typical millionaire has a 60% allocation to stocks, bonds, and cash. More importantly, this percentage seems to decline as households get wealthier. Once you become a decamillionaire or centimillionaire, business interests began to dominate most of your wealth.
Now that we have a rough idea of how millionaires allocate their assets, let’s look at their buy and sell decisions.
Do Millionaires Try to Time the Market?
When it comes to trying to time the market, affluent households are quite tame. As the table below (from Vanguard) illustrates, a little over half of all affluent households traded their accounts within a year, and when they did they only traded about 10% of their total assets:
This suggests that millionaire households aren’t trying to time the market. And this isn’t just an artifact of the relatively calm market stretch from 2015-2019. During the market crash of March 2020, only 11% of Vanguard investors made any active trades.
And this isn’t just a Vanguard thing either. The Millionaire Next Door comes to a similar conclusion when describing the typical millionaire household (emphasis mine):
We hold nearly 20 percent of our household’s wealth in transaction securities such as publicly traded stocks and mutual funds. But we rarely sell our equity investments.
From what I’ve seen between these two data sources, it seems clear to me that most millionaires aren’t trying to time the market in any meaningful way. They invest and let it ride.
Now that we have looked at market timing, let’s examine how millionaires pick which securities to buy within an asset class.
How Do Millionaires Pick Securities Within an Asset Class?
When it comes to how millionaires pick securities within an asset class, the answer is—diversification. If you look at the investment product choices that affluent households make, you will see that the vast majority use mutual funds (which tend to be diversified), with only one third of them owning any individual securities (i.e. individual stocks):
While the vast majority of affluent households diversify through mutual funds, they are not all passive investors. Though the shift to passive funds accelerated from 2015 to 2019, 77% of affluent households still owned an active mutual fund in 2019.
This might surprise you, but this phenomenon is mostly being driven by older households who tend to have more of their wealth in active strategies:
As German scientist Max Planck once said:
Science advances one funeral at a time.
Well, the same seems to be true with passive investing. Older investors, who didn’t grow up in the age of mass indexing, don’t seem to have taken to passive in the same way as younger investors as a whole. Therefore, as these older investors pass on, we should see even further adoption of passive investing in the future.
Now that we have looked at the asset allocation, market timing, and security selection decisions of millionaire households, let’s examine whether wealthier millionaires invest the same as their less fortunate counterparts.
Do Wealthier Millionaires Invest Differently?
So far I have focused our analysis on households that are right above the millionaire threshold. But, what about households that have more than just a few million dollars to their name? Do they invest differently than the typical millionaire household?
The evidence suggests that they do. This report from KKR demonstrates that ultra-high net worth investors (those with >$30 million in assets) invest more money into alternatives (i.e. private equity, hedge funds, etc.) and cash than high net worth investors (those with >$1 million in assets).
As you can see in the chart below, ultra-high net worth (UHNW) investors allocated 30% to stocks, 10% to bonds, 50% to alternatives, and 10% to cash while high net worth (HNW) investors allocated around 50% to stocks, 20% to bonds, 25% to alternatives, and 5% to cash:
I can’t necessarily explain why UHNW investors have more money in alternatives, but I have a few theories. One of them is that, as wealth increases, households tend to invest based more on status than returns. Alternative investments like private equity and hedge funds offer a sense of exclusivity that you can’t get with a Vanguard index fund.
Another possibility is that wealthier households invest in alternatives because they are the only ones that can access them anyway. While anyone with a few thousand dollars (sometimes less) can buy an index fund, you need to have serious capital to get into many of these alternatives.
Fortunately, retail investors (i.e. you and I) don’t need alternatives to successfully build wealth. In fact, there’s a decent amount of evidence showing that public investment strategies tend to outperform private strategies, especially after fees are taken into account. For example, the chart below shows the returns generated by hedge funds and the S&P 500 from 2015 to 2021:
As you can see, the S&P 500 outperformed a basket of hedge funds in every year from 2015-2021. This is even true in 2018, the only down year during this time period! For all those hedge fund defenders that like to say, “But hedge funds will outperform in a down market!” please explain 2018.
Either way, my point stands. There is no evidence that the typical retail investor needsalternatives to build wealth. While investing in alternatives can be nice to brag about at dinner parties, I’m not in the business of bragging. I’m in the business of trying to make you richer.
With that being said, let’s conclude by discussing why investing like a millionaire won’t necessarily make you into one.
Why Investing Like a Millionaire Won’t Necessarily Make You a Millionaire
Throughout this article we have assumed that by emulating how millionaires invest their money, you too will one day become a millionaire. But this isn’t necessarily the case.
Why? Because most millionaires don’t become millionaires solely based on their investment decisions. They also tend to have a high income, a high savings rate, or both. And the further you go up the wealth spectrum, the more apparent this becomes.
If you want to become a typical millionaire, like the affluent households in Vanguard’s 2020 How America Invests study, buying a diverse set of income-producing assets and earning 7% a year will work just fine.
However, if you want wealth that is orders of magnitude higher, the S&P 500 ain’t gonna cut it. To obtain extreme levels of wealth you need:
- A very high income (i.e. famous musician/actor/athlete, successful business owner, C-Suite executive, etc.), or
- A huge liquidity event (i.e. sell your business, startup equity IPO, etc.)
Possibly a bit of both. Of course, I don’t know which path will be right for you. But, I do know that investing like a millionaire won’t necessarily make you into one. With that being said, happy investing and thank you for reading!
If you liked this post, consider signing up for my newsletter or checking out my prior work in e-book form.
This is post 334. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
FAQs
Millionaires tend to turn to private banks for a variety of reasons. Since they offer a wide range of financial products, services, and expertise under one roof, the element of convenience can be very enticing. There are also several perks and more favorable options and rates, making the bank very attractive.
Do billionaires have bank accounts? ›
Ultra-high-net-worth individuals (UHNWIs) need checking accounts that are equipped to meet their unique wealth management needs. Many ultra-high-net-worth individuals choose to conduct their banking at the same institutions that are frequented by average consumers.
Do millionaires use credit cards? ›
Credit cards play a major role in the financial lives of wealthy Americans. While they use credit cards for similar reasons as other Americans, they also rely on credit cards to manage their finances, earn rewards, and take advantage of exclusive benefits that come with high-end credit cards.
Can you keep millions in the bank? ›
Can You Keep Millions in the Bank? Keeping large amounts of money in a bank can be tricky, but it is possible. There are limits to the amount of money that is insured for each depositor at a bank — up to $250,000 per depositor with the FDIC — so the super wealthy often spread out their accounts over multiple banks.
Where is the safest place to keep cash at home? ›
Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.
Do millionaires keep their money in checking account? ›
High net worth investors typically keep millions of dollars or even tens of millions in cash in their bank accounts to cover bills and unexpected expenses. Their balances are often way above the $250,000 FDIC insured limit.
Do millionaires put their money in one bank? ›
Some millionaires bank their money in offshore accounts, while others keep it in more traditional bank accounts. Many high-net-worth individuals bank with large banks that have a presence in multiple countries, such as JPMorgan Chase & Co.
What bank is Bill Gates with? ›
Cascade Investment
| Type | Private |
|---|
| Founded | 1995 |
| Founder | Bill Gates |
| Headquarters | Kirkland, Washington , United States |
| Key people | Bill Gates (Chairman) Michael Larson (CIO) |
5 more rowsJeff Bezos' net worth is $139 billion as of May 2023, making him the third-richest person in the world. Bezos is the founder and former chief executive officer (CEO) of Amazon. He remains the executive chair of the company. He holds traditional investments, such as real estate, and shares in other companies.
How much money do you need to open a Swiss bank account? ›
Swiss bank minimum balance
The minimum balance for Swiss bank accounts depends on the account type and can vary from free of charge up to millions of dollars. Generally, Swiss banks may require you to deposit at least 10,000 CHF ( $9,000 or EUR 6,800) within a month of opening your account.
Wealthy Americans generally use credit cards the same way that everyone else does. They opt for cash back and no annual fee cards, and generally trust the big issuers. But they have some bad habits, too -- about half had an automatic payment set up, and only a third pay their statement or full balance every month.
What kind of card do millionaires use? ›
What are the most prestigious credit cards? The most prestigious credit cards are the Centurion® Card from American Express, the J.P. Morgan Reserve Credit Card, and the Citi Chairman Card because all 3 cards are invitation-only.
What type of card do rich people use? ›
What Credit Card Do the Super Rich Use? The super rich use a variety of different credit cards, many of which have strict requirements to obtain, such as invitation only or a high minimum net worth. Such cards include the American Express Centurion (Black Card) and the JP Morgan Chase Reserve.
Can you deposit $100 million in a bank? ›
DDA/MMDA allows you to place funds into demand deposit and/or money market deposit accounts. You can deposit up to $135 million for each account type. With this option, you can enjoy expanded insurance protection and still have the flexibility to access your funds when you need them.
Can you withdraw a million dollars in cash? ›
Unless your bank has set a withdrawal limit of its own, you are free to take as much out of your bank account as you would like. It is, after all, your money. Here's the catch: If you withdraw $10,000 or more, it will trigger federal reporting requirements.
Where do you put a million dollars in the bank? ›
A savings account or certificate of deposit is probably the safest place to put $1 million to work. These accounts are protected by the Federal Deposit Insurance Corporation (FDIC). Certificates of Deposit: The top interest paid on a CD or other “time” account runs about 3.5% to 5% as of late 2022.
How much cash can you fly with? ›
You can fly with any amount of cash. No law prohibits you from bringing any amount of money on a flight. Likewise, TSA has no rules that limit how much money you can bring through security. In other words, TSA has no cash limit per person.
Where not to hide money? ›
Hiding Places to Avoid:
- areas that can damage your valuables with water or invasive matter, such as the water tank of a toilet, inside a mayonnaise jar that still has mayonnaise in it, or a paint can filled with paint. ...
- a jewelry box. ...
- your desk drawer, bedside drawer, or underwear drawer. ...
- inside CD cases.
Check these hiding spots before transitioning a senior to a retirement community
- Plants. Does the older person have potted plants in his or her home? ...
- In clothes and shoes. Another common place to stash valuables is in shoes. ...
- On the bookshelf. ...
- Anywhere there's room. ...
- In the vents.
Someone who has $1 million in liquid assets, for instance, is usually considered to be a high net worth (HNW) individual. You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth.
Millionaires and the general population receive inheritances at the exact same rate. So, don't miss this: Millionaires are no more likely to get an inheritance than their neighbor who's swimming in debt. And if you do happen to get an inheritance, you're probably going to have to wait a long time to get one.
What do millionaires buy for fun? ›
He asked many of the millionaires about their favorite splurge, and found the top five answers included travel, wine, and cars.
Is it OK to have all your money in one bank? ›
Keeping all of your money at one bank can be convenient and is generally safe. However, if your account balances exceed the deposit limit that's insured by the FDIC, some of your money may not be protected if the bank fails. And if you're a fraud victim, having cash all in one place could compromise more of your money.
How much money can you safely have in one bank? ›
COVERAGE LIMITS
The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC provides separate coverage for deposits held in different account ownership categories.
How much money can you put in one bank? ›
Generally, there is no limit on deposits. However, there are limitations on the amount of funds the Federal Deposit Insurance Corporation (FDIC) will insure. Please refer to the Understanding Deposit Insurance section of the FDIC's website for more information on FDIC deposit insurance.
Do millionaires have several bank accounts? ›
An average millionaire has at least five rich bank accounts. Each of them is usually designed for a specific purpose: savings. investments.
How much cash in the bank does Bill Gates have? ›
How much does Bill Gates have in cash? According to Bloomberg, Bill Gates holds more than $50 billion in cash at hand.
How much liquid cash does Bill Gates have? ›
Despite low-interest rates, Bill Gates' cash in the bank remains at record levels. According to recent data from Bloomberg Billionaires Index, the tech billionaire currently has $56.7 billion cash in the bank as his net worth hangs around $138 billion.
Who owns the most cash in the world? ›
Luxury Mogul Takes Top Spot. The world's richest person is France's Bernard Arnault, the chief executive of LVMH. With 75 brands, the luxury conglomerate owns Louis Vuitton, Christian Dior, and Tiffany.
How much actual cash do billionaires have? ›
A billionaire has a net worth of at least one billion units in their native currency.
Forbes estimates that Bezos has donated more than $2.4 billion to charity in his lifetime. He committed a total of $10 billion to his own climate nonprofit, the Bezos Earth Fund, in 2020.
Do billionaires buy houses in cash? ›
Despite the fact that many wealthy people could afford to buy a home outright, they often get mortgage loans anyway.
Do billionaires take loans? ›
Billionaires multiply their wealth by borrowing against their assets to pay for new investments. But they aren't the only ones who can use leverage to their benefit. In 2021, a ProPublica article revealed that some U.S. billionaires pay little to no tax.
Do Swiss banks report to IRS? ›
As of 2022, information about your Swiss bank account must be handed over to the IRS in the United States. The IRS is responsible for collecting taxes and assessing the wealth of Americans, even wealth held in Swiss bank accounts must be accounted for.
Can US citizens open a Swiss bank account? ›
Residents of almost any country worldwide can open Swiss bank accounts and Switzerland is indeed one of the most renowned countries when it comes to opening accounts for foreign nationals. A Swiss bank account still offers security and privacy.
Why is a Swiss bank account so good? ›
The main benefits of Swiss bank accounts include low levels of financial risk and high levels of privacy. Swiss law prevents the bank from disclosing any information regarding an account (even its existence) without the depositor's permission, except in cases where severe criminal activity is suspected.
How can you tell someone rich? ›
Rich people tend to emphasize experiences they have had or want to have over things they can simply buy. Wealthy people would rather travel to exotic new places and try new hobbies and sports than buy yet another car or go to a fancy restaurant.
Do rich people use wallet? ›
#3 They can carry so many cards
You probably have four or five, at most. Rich people, on the other hand, have way more than that. That's why they use long RFID-blocking wallets to carry all of their credit cards (and more).
Do rich people have credit scores? ›
Because income has no impact on credit, the wealthy are just as likely to have a low credit score as the poor. The rich can miss payments, rely too heavily on credit, and open too many new accounts, all of which will lower their credit score.
What is the rarest credit card in the world? ›
The rarest credit card in the world is likely the Centurion® Card from American Express, also known as the “Black Card.” This card is available by invitation only, and you will reportedly need to spend at least $250,000 per year on other Amex credit cards and have an income of $1 million+ to get it.
The hardest Amex card to get is the Centurion® Card from American Express. Also known as the “Black Card,” this Amex card is hard to get because it is available by invitation only, and potential candidates are rumored to need an annual income of at least $1 million.
What is a black card limit? ›
The minimum credit limit on a Mastercard Black card is $5,000. However, your credit limit could be higher depending on your creditworthiness.
What is the highest credit score? ›
The base FICO® Scores range from 300 to 850, and a good credit score is between 670 and 739 within that range.
What cars do the rich drive? ›
According to a 2022 study by Experian Automotive, a lot of wealthy folks simply don't drive fancy cars. The study found that for people with household income of more than $250,000, 61% don't drive luxury brands. They drive Toyotas, Fords and Hondas like the rest of us. Other studies show similar results.
What is the black credit card rich people have? ›
The American Express Centurion Card, colloquially known as the Black Card, is a charge card issued by American Express. It is reserved for the company's wealthiest clients who meet certain net worth, credit quality, and spending requirements on its gateway card, the Platinum Card.
How do 90% of millionaires make their money? ›
“90% of all millionaires become so through owning real estate.” This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago.
Do millionaires have a million in the bank? ›
A net-worth millionaire is someone who has a net worth of at least $1,000,000. Net worth is a fancy way to say 'what you own minus what you owe. ' If that amount ends up being $1,000,000+, you're a net-worth millionaire."
What to do if you have more than 250k in the bank? ›
- Open an account at a different bank. ...
- Add a joint owner. ...
- Get an account that's in a different ownership category. ...
- Join a credit union. ...
- Use IntraFi Network Deposits. ...
- Open a cash management account. ...
- Put your money in a MaxSafe account. ...
- Opt for an account with both FDIC and DIF insurance.
90% of millionaires make over $100,000 a year. Once you have a $500 emergency fund, you should . . .
Do millionaires pay off their house? ›
Most have paid off their mortgages. In 2020, 58% of the state's equity millionaires owned their homes free and clear. Statewide, there has been a dramatic rise in the number of Californians who have paid off their mortgages, from 1.6 million households in 2000 to 2.4 million in 2020.
Choose the right career
And one crucial detail to note: Millionaire status doesn't equal a sky-high salary. “Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.”
Do millionaires pay off debt or invest? ›
They stay away from debt.
Car payments, student loans, same-as-cash financing plans—these just aren't part of their vocabulary. That's why they win with money. They don't owe anything to the bank, so every dollar they earn stays with them to spend, save and give!
Do millionaires keep cash? ›
Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. And they tend to establish an emergency account even before making investments. Millionaires also bank differently than the rest of us.
How much money can I put in the bank without it getting flagged? ›
Banks must report cash deposits totaling $10,000 or more
When banks receive cash deposits of more than $10,000, they're required to report it by electronically filing a Currency Transaction Report (CTR). This federal requirement is outlined in the Bank Secrecy Act (BSA).
How much money can you put in the bank without suspicion? ›
Does a Bank Report Large Cash Deposits? Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.
How much money can you put in the bank without being suspicious? ›
A cash deposit of more than $10,000 into your bank account requires special handling. The IRS requires banks and businesses to file Form 8300, the Currency Transaction Report, if they receive cash payments over $10,000. Depositing more than $10,000 will not result in immediate questioning from authorities, however.
How much is considered extremely wealthy? ›
You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth. That's how financial advisors typically view wealth.
At what age are most millionaires made? ›
The average millionaire is 57 years old.
This is because it takes smart financial decisions, hard work, and wise investments to become a millionaire, most of which don't fully pay off until around the age of 50 or 60.
Are most millionaires married or single? ›
- Most millionaires work at Fortune 500 companies. ...
- Many poor people become millionaires by winning the lottery. ...
- Millionaires usually drive new cars. ...
- Many millionaires drop out of college to start work. ...
- Single people are more often millionaires than married people. ...
- It is impossible to save enough to be a millionaire.
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