This Is How the Top 1% Invests Their Wealth

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The wealthiest investors are a rule unto themselves, but there is still a lot to learn. Here’s where their money is going. 

Some people feel that mimicking the strategies of the wealthy can help them gain their own wealth. Others understand that the top 1% have different options — and priorities — than folks in lower wealth brackets, so their investing strategies will be quite different.

Whichever camp you’re in, we all agree that the investing choices of the ultra-wealthy are at least worth exploring. One such study from Bank of America is of interest. The survey talked to 1,052 high-net-worth households with at least $3 million in investable assets.

They were asked questions about their own asset allocations, as well as their opinions on investing trends. Here’s what was revealed.

Traditional stocks make up less than you’d think

Despite the cultural cliché of stock brokers on speed dial, stocks make up less of these investors’ assets than one might otherwise assume. Equities made up only 52% of the average asset allocation overall. But that’s not the interesting part.

When broken down by source of wealth — “legacy” wealth versus “head start” wealth versus “self-made” wealth — it turns out that those who inherited their money invest less in the stock market than their counterparts. Respondents in the legacy wealth group had an average 44% stock allocation, while self-made investors had an average stock allocation of 57%.

That’s still not the most interesting find, however. It’s the age breakdown. For regular folks, the percentage of investments made up of stocks tends to start out high, then get smaller as folks get closer to retirement. This strategy makes sense, since stocks are considered riskier investments than most alternatives.

The ultra-wealthy do it differently. Specifically, the young and wealthy do it differently. Study respondents in the 21 to 42 age bracket had an average of just 25% of their investments in equities — the lowest number across the board.

Why the dropoff? The study attributed a lot of this difference to market confidence, saying, “Seventy-five percent of younger people agreed that ‘It’s no longer possible to achieve above-average returns’ on traditional stock and bonds alone. In comparison, only a third of the older group showed the same skepticism.”

Real estate still popular, digital assets growing

If they don’t trust the stock market, where are the younger high-net-worth households putting their money? Well, there’s the usual suspect of real estate, with young folks showing nearly as much confidence in the real estate market as the older respondents.

But the big difference between the two age groups focused around alternative investments. For example, 29% of younger respondents in the study said that cryptocurrency and other digital assets present “a leading opportunity to create wealth.” And at least some of them are putting their money where their mouth is on this one; the average asset allocation for crypto was 15% in that age group.

Other alternative investments were also of interest, with a quarter of younger investors seeing the growth potential in private equity investing. The same percentage of young investors said investing directly into companies could offer the greatest opportunities for growth.

The younger generations also seem to have more (market) confidence in themselves. Eighteen percent of younger investors were optimistic about the growth potential of investing directly in themselves, via their own companies and personal brands. (In contrast, only 6% of older investors felt this was a good area to invest their wealth.)

Sustainable investing is the future

While even young high-net-worth investors are split about where to best allocate their assets, there seems to be strong agreement on one investing trend: sustainable investing. Study respondents in that 21 to 42 age group are adopting sustainable investments at a rapid pace, with 74% saying they currently hold sustainable investments in their portfolios.

This is more than three times the amount held by older investors (they’re at just 21%). More interesting, though, is arguably the fact that both groups more than doubled their investments in this area over the last four years.

Age isn’t the only indicator of sustainable or socially aware investments. The study also found that among high-net-worth investors, women were 13% more likely than men to prioritize these investments — 49% versus 36% — and people of color 24% more likely than white investors.

The future of investing

If the idea of so many ultra-wealthy investors looking outside the stock market makes you want to run off and sell, sell, sell — stop. Take a breath. Just because young millionaires aren’t as gung-ho for the stocks and funds as their parents doesn’t mean your portfolio is doomed.

These glimpses into the investing habits of the wealthy are solely that: glimpses. Consider this a look at how investing might be evolving in the future; much more food for thought than field guide to wealth.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Bank of America is an advertising partner of The Ascent, a Motley Fool company. Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

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