Author: David Kafka
What does it take to be in the top 1% in the US? According to the 2021 Knight Frank Wealth Report, roughly $4.4 million.
While you might not have that kind of net worth, you can still take a page out of their book when it comes to making investment decisions.
Here are a few key points to investing like the top 1%:
Their portfolios are diversified.
According to an article from Yahoo Finance, “In addition to holding 61 percent U.S. equities (stocks), the top one percent typically has 12 percent cash, 11 percent allocated to real estate, 6 percent to pensions, 5 percent to debt, and 3 percent to durables.”
Having a variety of different assets in your portfolio helps you balance risk and reward. Further, diversifying within individual types of investments is important too.
If you’re a real estate investor and all of your investments are in the same neighborhood, what happens if a hurricane comes through and damages them all? You’re susceptible to losing ALL of your cash flow in an instant.
My mentors, The Real Estate Guys™, always say, “Live where you want to live, invest where the numbers make sense.” Investing in different areas or even different countries helps you hedge against fluctuations, disasters, policy changes, etc.
It’s important to remember that real estate is local. When investing in unfamiliar markets, be sure to talk to a trusted market expert to avoid unnecessary risk and make better investment decisions.
They value passive investments.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
– Robert Kiyosaki
They know the tax code. (Or know a good CPA who does.)
“If you want to change your tax, you have to change your facts.”
– Tom Wheelwright, CPA, Rich Dad tax advisor.
Like we discussed in this newsletter, there are incredible tax advantages for real estate investors … you just have to know how to take advantage of them.
They give back.
“Only by giving are you able to receive more than you already have.”
– Jim Rohn
High net worth individuals generally have an abundance mindset, not a scarcity mindset.
So what types of assets are the 1% investing in?
The population is growing, and everyone needs to eat. Land is limited, and they’re not making it anymore. Basic laws of supply and demand tell us that putting money on food and crop production, processing, and distribution is a good bet. And it’s gaining popularity among investors.
In addition to strong ROIs, investing in agriculture has tax advantages, and offshore agriculture can help you gain freedom through obtaining a second residency.
The top 1% tend to think long-term rather than making a quick buck. When compared to other asset classes, precious metals consistently produce strong returns over time. If you read our article on gold and silver last month, you know they’re versatile assets that offer stability and can help investors hedge against inflation.
Commercial Real Estate
Back to the concept of investing for the long-term benefits, there’s generally less liquidity in Commercial real estate. But while your money may be tied up for a longer period of time, these types of assets typically generate higher returns over time and are subject to less short-term volatility.
When it comes to diversification, there’s good reason to own different types of commercial real estate. The pandemic has brought up a lot of uncertainty in retail, hotel/hospitality, and (some) office. However, industrial, multifamily, and medical have remained strong overall throughout the pandemic.
It’s hard to beat the predictability and cash flow potential of multi-family real estate. Regardless of what’s happening in the economy, people need a roof over their heads. And more doors = more rents. It also comes with its own attractive set of tax benefits.
While following in the investment footsteps of the top 1% won’t necessarily land you in their tax bracket, using their strategies on a smaller scale can certainly help you in your quest to build passive, long-term, generational wealth.