The Truth About How the Ultra Wealthy Invest (Top 10% vs 0.1%)

Ever wondered what actually sits inside the portfolios of the ultra wealthy? This is a real breakdown of real people’s assets, what they own, and whether there’s anything we can apply to our own investment strategies. Data was pulled from 180,000 wealthy US investors whose assets have been tracked via a wealth management platform, and this is the full breakdown of how they allocate their assets.

This includes people from the top 10%, the top 1% and even the top 0.1%, broken out so we can compare and contrast to see what the wealthy do and how they change their portfolio as they get wealthier. The first line item is cash. In accounting and finance, we call this cash and cash equivalents. Basically, it refers to anything that is highly liquid, low risk and not meaningfully invested. For example, any money you have in a bank account would be considered cash. But even if within your bank, let’s say your online bank, you’ve opened a savings account that gives you a better interest rate, that still isn’t meaningfully invested. So that would still be considered cash.

If you also have a brokerage account, let’s say a Trading 212 account, and you have some money invested but also keep some money in cash, that will obviously also be included as cash. And then any money market funds, which is basically just cash invested in very short-term safe instruments like government treasury bills, that’s also considered cash. The first thing we notice in the data is that cash makes up less than 10% of the ultra wealthy’s investment portfolios.

Cash Strategy of the Rich (Why It’s Under 10%)

For people who don’t have a lot of wealth, a clear indicator of this is that usually a lot of their assets is just cash. They probably just have a couple hundred dollars, or maybe even thousands, in their bank account, and then maybe a car. That’s it, that’s all of their assets. But as you begin to build more wealth, you have to diversify away from cash because it has the worst returns, usually around 0%, and very often cash has a negative return once you factor in inflation. But one thing you do see is that even for the ultra wealthy, those with over 100 million in assets, they still keep at least 7% of their portfolio in cash, according to the data.

And that’s because liquidity is so important. It gives you optionality, whether that’s to take advantage of a new investment opportunity or just to cover an emergency. Always have some cash readily available. But don’t keep all of your assets in cash because it doesn’t have a good return. The second line item is fixed income. Fixed income is anything where you lend money in exchange for a predictable, regular income.

Fixed Income Explained (Bonds & Passive Income)

For example, you lend £10,000 and you know you’re going to get £1,200 back every single month for 10 months. That’s just an example, but the most common fixed income products are usually government bonds, where you lend to, let’s say, the UK or the US government, and they pay you interest for a fixed period and then usually just return your money at the end. That’s an example of a fixed income product. It’s not the sexiest form of investing, it’s quite boring, more of a defensive strategy.

Hence why, in the data, wealthier investors hold less in fixed income products. That’s probably because they can stomach a lot more risk in other products and still be fine. Fixed income products also aren’t very easy to come by. They’re not the kind of thing you’ll just find on the stock market and easily get in and out of. The next line item is public equities, which you can just think of as the stock market.

Public Equities Breakdown (Stocks, ETFs & Funds)

This is the amount invested in public companies, and it makes up a huge proportion of these investors’ portfolios, between 30 and 50%. That makes sense, because you have a lot of choice when investing in the stock market. Choice of companies, choice of industry, choice of risk level, ETFs, mutual funds, single stocks, global equities. You can diversify even within this one asset class, and it’s also very easy to do.

What the data shows is that wealthier investors actually tend to hold more single stocks and global equities, while less wealthy investors lean more on ETFs and mutual funds. That was one of the conclusions in the paper. It all falls under the public equities umbrella. What’s also interesting is that as wealth grows, the portion of public equities held in a portfolio actually shrinks.

How Rich Investors Approach the Stock Market

For those with less than 3 million in assets, 51.3% of their assets were held in equities, compared to 30.3% for those with more than 100 million in assets, according to the data. What helps explain this is what we see in some of the other asset classes, like alternatives, where there’s actually an inverse trend.

Alternatives Investing (Private Equity, VC, Hedge Funds)

In the wealthiest category, 23% of the portfolio was invested in alternatives, versus 8.9% for those with under 3 million invested. If you don’t know what alternatives are, it’s essentially any investment vehicle that sits outside traditional stocks, bonds, cash, and real estate, anything non-traditional. The main ones referred to in the paper are private equity, where you buy stakes in private companies, venture capital, where you invest in early-stage companies, and hedge funds, where money from wealthy investors is pooled together to run more complex trading strategies.

You don’t hear about alternatives as often because they usually have very high minimum investment sizes. For example, to get into a private equity fund, you might have to invest a million dollars at minimum, and then probably won’t have access to your money for maybe a decade. So it makes sense that those with more wealth would invest more into alternatives, since they’re more likely to reach those minimums without it taking over their whole portfolio.

What’s unsurprising is that the more that was invested into alternatives, the better the returns. For those with under 3 million invested, the return was 2.94% from alternatives, while those with over 100 million invested had a return of 7.58%, according to the paper. That’s a gap of about 5 percentage points, which is a lot when you’re dealing with large sums of money. Private companies followed a similar trend as well.

Business, in its various forms, is often where wealth is actually built. If you’re currently running a small business or side hustle, that’s worth sticking with, but it’s worth making sure you’re doing it right. Plenty of businesses fail not because the idea or the product was bad, but because of poor cash flow management.

The Real Estate Strategy of the Wealthy

Before drawing any conclusions here, it’s worth noting that people’s primary residences were not included in this data. So for those on the lower end, their real estate exposure is highly likely to be almost entirely their home, which wouldn’t be captured in this data. When you look at the numbers, you’ll see that as wealth grows, investors start adding more real estate into their portfolio deliberately, through funds and then direct property holdings, which is why that number creeps up.

Another interesting data point from the paper on real estate is that wealthier investors actually earned less from their real estate than those with less wealth. That’s understandable, since bigger properties tend to have lower returns. Some of the best-performing units tend to be smaller ones, for example, studios in a market like Dubai tend to perform well on ROI.

Your overall return looks a bit different once you factor in capital appreciation. But once you have more money, you’re not necessarily buying property for the ROI anymore. You might be buying it because you want to own that mansion, or partly for ego, going after bigger properties in general, which tends to mean lower returns from a pure ROI perspective.

Key Takeaways: Portfolio Shifts & Investment Returns

Here are the three main takeaways. The first is that as wealth grows, portfolios shift dramatically away from public markets towards more illiquid alternatives. Private equity, venture capital, hedge funds, the ultra wealthy have close to half of their portfolios in assets that most ordinary people simply don’t have access to. So the more money you make, the more of these opportunities open up.

The second takeaway is that the wealthy do get better returns. The average portfolio return for those with under 3 million was 3.88%, and for those with over 100 million was 4.33%, according to the paper. But it’s not because they’re smarter, a lot of it comes down to being able to diversify across many more asset types.

And the final one is that public equities markets, the stock market, are generally a level playing field, since the paper found that wealthier people didn’t get better returns from the stock market than those on the lower end. So your low-cost index fund could be just as competitive as what the wealthiest investors in the world are getting. That’s a positive. We might not have access to some of the private stuff, but in the stock market, we can get equal footing with those who are super wealthy.