NBER study reveals investment strategy of millionaires

• A balance of risk and potential
• Portfolio allocation is crucial
• 10 percent of total assets in one share

How do millionaires invest?

Many people are chasing after the dream of becoming rich one day and belonging to the exclusive circle of millionaires. Normal earners are to a large extent downright fascinated by the decision-making behavior and behavior of the super-rich; attempts are made to understand the financial decisions and, if necessary, to be able to imitate them.

A study by the National Bureau of Economic Research was able to show that millionaires invest their capital differently than less wealthy people. For this purpose, the investment decisions of more than 1,000 rich people with capital investments of more than one million US dollars were analyzed.

The investment intentions

As the study shows, the arguments of the rich differ from those of average earners when it comes to the intentions with which their own capital should be invested.

While millionaires are increasingly relying on the advice of professional investment advisors when it comes to stock allocation, taking into account the pension horizon and their own experience and at the same time weighing up the maximum risk, the crux of the matter for non-millionaires is pension protection and the cash requirement that can be called up in emergencies can be used to pay current bills.

Less important for rich investors is the risk of loss, media opinions and becoming even richer than other millionaires.

The strategy

Nevertheless, millionaires as a whole are relatively risk-averse in terms of portfolio allocation. On average, the portfolios consist of 4.1 percent government bonds, 5.9 percent real estate, 20.1 percent financial instruments and 53.3 percent equities.

As Yahoo Finance reports, these portfolios are much more conservative than previously thought, according to DataTrek Research co-founder Nicholas Colas. With regard to asset allocation, another phenomenon is also very noticeable: the millionaires invest a large part in investments with high potential and the rest in very safe investments.

Despite this supposedly risk-averse strategy, it can still be seen that some of the rich investors are backing a horse. For example, 15 percent of millionaires have 10 percent of their net worth invested in a company. This could be related to the fact that, according to the study, most wealthy investors are of the opinion that they can identify a particularly good investment.

In addition, millionaires do not share the common belief that higher return potential always comes with higher risk. As the authors conclude: “Concentrated equity investments are often driven by the belief that an overweight stock promises a higher return with less risk than other stocks.”

Henry Ely / Editor finanzen.net

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