Monday, September 20, 2021

5 Biggest Mistakes That Rich Avoid While Making Investments- Learn From Successful Ones

What do these rich people do to become a money vacuum? What investments earn rich people everlasting wealth? Where do rich people put money where it automatically multiplies? And most importantly, what investment mistakes do these wealthy lot avoid at all cost, to ensure their hustle doesn’t turn against their wealth?

Any individual who has accumulated a wealth of more than $30 million, falls under the category of Ultra-high-net-worth-individuals or UHNWI are individual. As per studies in 2018, these ultra-rich and successful individuals amount to only 0.0003 percent of the population (that is less than 1 in 33,000) but hold the wealth equivalent to 3.8 billion people As per the World Ultra Wealth Report 2019, there were 265,490 ultra-high-net-worth-individuals across the globe in 2018, with a combined wealth of $32.3 Trillion! That is a lot of zeros. Most calculators can’t even handle such numbers.

We have covered the answer to most of the above questions on our website. You can check our Money category to learn about any financial subject, tips, tricks, and latest investment trends. However, here we tell you about the biggest mistakes while making investments that rich and wealthy make sure to avoid.

Is there any change in trend how rich and wealthy put their money in investments?

Asset allocation among the ultra-rich hasn’t changed too much down the years. However, owing to global unrest and recent banking failures, there has been a trend towards keeping more liquid assets in the form of cash and cash equivalents.

Image from Wealth

5 mistakes the richest of rich people avoid with their investments

The ultra-rich understand the importance of savings and of taking calculated risks. They realize the power of compounding and know how to make the most of earning interest on interest. These people have trust funds and other investing gurus personally looking after their investments. So what are the mistakes they rich and wealthy tend to avoid with their investments to do wonders with their existing money?

1. They DO NOT allocate invests only into Public markets

The UHNWI realizes that real growth and profitability arise in private markets rather than in public markets. You would have definitely heard of angel investors. Ultra-rich and wealthy invest in start-ups and non-publicly listed companies via angel investing or through equity-backed investments into these privately held companies. The profits that these start ups and companies earn is then shared with the angel investors at the decided rate. There are many websites that allow you to invest in start-ups. I personally invest via Republic.

2. Ultra-Rich DO NO invest in just the US and EU stock markets

The American stock market as well as of the European Union offers the best safety of the investments and wealth. No one throughout the world can deny the huge returns that these markets reap for their investors. However, the rich tend to look beyond these national border investments. An eye for futuristic investments is what differentiates an expert investor from a good one. Rich and wealthy identify emerging markets early such as markets of China, India, Brazil and Indonesia and divert some portion of their investment there.

3. Wealthy never underestimate the power of investing in tangible assets

Most people stay away from investing in tangible assets such as commercial and private real estate, gold, jewelry, art, and paintings, etc. for fear of high initial capital outlay and uncertainty of return. This is especially true when during current times when stock market and mutual fund investments have been glamorized through movies and TV shows to an irresistible extent.

However, the ultra-rich realize the importance of including tangible assets in their portfolio alongside intangible assets such as shares, bonds, etc. Tangible assets provide a market that is at most times uncorrelated to the swings of the share market and economy at large. This provides a massive opportunity for profits even in a struggling economy.

For example- Yale University’s Endowment Fund has over the past 30 years, reduced its dependence on US bonds and stocks, shifting to non-traditional asset classes. Today, foreign equity, private equity, real estate constitute nine-tenths of the endowment – earning them on an average over 8% per annum from June 2006 to June 2016.

4. Overspending!

The wealthy realize the importance of not only increasing the revenue part of their Profit and Loss statements but also decreasing their expenses column. They understand the value of having a saving-strategy alongside a route for investments and wealth. Spending below their means and regularly saving allows the rich to remain rich. After all, nobody knows what tomorrow may hold, and therefore, there is no better time to begin the damage control than now.

5. Following the herd

Oftentimes, markets swing with momentum towards a particular stock or sector only to crash unexpectedly. The ultra-rich know not to follow ‘herd mentality’, and rather follow a value-based investing approach. While most of the small and medium investors are copying their peer’s move, the smartest one in the room will take the road less taken. Wealthy people set up their own personalized investment goals, route and means to achieve them. If you are investing to compete against someone else, and bring them down, forget about becoming one of the richest in the world. The rich and wealthy invest for themselves.

Rahul Sinha
Rahul is a B.Com(Hons) graduate from Delhi University and a CA final candidate. He is also the co-founder and CFO of a healthcare start-up based out of New Delhi, India. Rahul is an avid investor and holds a diverse portfolio. Having worked for 3+ years with Deloitte in Statutory Audit and then later in a tax profile, Rahul believes in understanding the bottom-up functioning of established businesses and leverages this very knowledge to create value through his company. His next challenge lies in Germany where he will soon be pursuing his masters degree in Finance.

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