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Should you invest like the very rich?

By Sheyna Steiner · Bankrate.com
Friday, January 24, 2014
Posted: 12 pm ET

Two surveys out this week shed light on how rich people got that way and how the very wealthy stay that way. First up: A survey from the PNC Financial Services Group asked millionaires how they got rich.

Alas, most have no magic bullet to offer: 56 percent said they started saving early and they continue to save regularly. Controlling spending and making good investment decisions came in second place, with 38 percent of respondents attributing their wealth to each of these personal finance priorities. Only 26 percent of millionaires say it's due to making lots of money, while even fewer, 3 percent, say they married into wealth.

Once you've clawed your way into the realm of the rich, possibly utilizing several of the methods mentioned in the PNC survey, how do you invest your fortune to stay there? If you have $30,000 to pony up annually for membership and want to learn to invest, TIGER 21 is a club for peer-to-peer investment advice. Rubbing elbows with CEOs, entrepreneurs and hedge fund types enables you to learn from the pros.

TIGER 21 recently released the quarterly asset allocation report for the fourth quarter of 2013. It shows the average allocations members held last year. Apparently, the very wealthy folks feel pretty good about private equity, with just over a fifth, 21 percent, of their average portfolio devoted to it. Hedge funds account for just 8 percent of their portfolio, while stocks take up 23 percent and fixed income accounts for 14 percent. Twenty-one percent of the portfolio is invested in real estate.

Cash and cash equivalents take up 11 percent and the remaining 2 percent is split between commodities and miscellaneous investments.

Mean allocations to private equity have increased to more than twice the level in the fourth quarter of 2010, when the club's members held an average of 9 percent of assets in private equity.

Should I copy them?

Investors without vast fortunes can benefit from the investing ideas of big-time investors, such as those in TIGER 21 or even pension funds or endowments.

But, "generally speaking, I think for most investors, it's best to go with what you know," says Robert Laura, president of Synergos Financial Group in Brighton, Mich.

"That being said, if investors feel they would like some added diversification or wish to increase their risk tolerance with the potential for increased growth over the long term, private equity, hedge funds and other speculative investments may be of benefit. However, there are no get-rich-quick asset classes," he says.

These days small investors can access strategies used by private equity and hedge funds in the form of mutual funds and ETFs.

"Investors just need to develop a process for getting educated on them and then making the decision to use them or not. Personally, I wouldn't just jump off the bridge," Laura says.

Do you stick to traditional asset classes or have you added any alternative assets to your portfolio?

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Follow me on Twitter @SheynaSteiner.

***
Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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1 Comment
Novice
January 28, 2014 at 1:30 pm

While I was in the military, my friends also in the military went out to the nightclub every night, I was saving that money instead. It's okay to have fun, just not too much.

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