It is possible to learn a lot from affluent people manage their cash.
The very loaded — those with investable assets of at least $3 million — have a lot in common when it comes with their fiscal management, according to a survey of almost 700 high-net worth investors released Monday by U.S. Trust.
Here are five of the items that most wealthy people do with their cash that financial advisers say you should consider doing, too.
1. Delay gratification. More than eight in 10 high-net worth investors say that investing in long term targets is more important than funding needs and present wants. “If you are going to boil down wealth-building down to one simple thing, I’m hard-pressed to think of a much better characterization compared to the ability to delay gratification,” says Greg McBride, the chief financial analyst for finance site Bankrate.com. “If you attempting to save what’s left over and are spending first, you will frequently find that nothing is left over.”
Consider: If you get $100 toward your retirement each month — rather than spend that money — at the end of 20 years, you’d have around $40,000, assuming a 5% rate of return. If instead, you had spent that $ 100 each month, you’d have missed out on more than $15,000 in gains. Obviously, not everyone can heed this advice as “you can’t blow off your present needs” if they desire funds, says Joe Duran, CFA, the chief executive of monetary business United Capital and author of “ The Money Code.” Only make sure you comprehend the difference between needs (basic food, shelter, clothes, etc.) and wants, he adds.
2. Use credit strategically. Around two in three high net worth investors say they consider credit a decent way to build wealth, and four in five say they understand when and the best way to put it to use to their financial advantage, the U.S. Trust study also found.
Obviously, this strategy isn’t without its dangers — recall, credit can be expensive. But some advisers say that informed individuals can take this advice to heart. McBride says that consumers can do it in a number of ways: Those who pay off their credit card balances in full each month should use a rewards card and get cash or other perks for spending they’d do anyway. You could additionally, as opposed to rushing to pay down your mortgage or student loans (assuming these are low-rate, fixed loans), pay them down on schedule and instead use that additional cash to shore up your retirement funds, he says; in these instances you are, in a way, using cash the bank or the authorities lent you to fund your retirement. (Of course, you must make the payments required on these loans.)
3. Use a long-term, buy and hold strategy. Fully 85% of high-net worth investors say they made their biggest investment gains through long-term buy and hold strategies (in which you buy investments and hold onto them for many years), and they did this using mostly conventional stocks and bonds (89% choose this strategy).
It’s tried and true advice that Warren Buffett himself has espoused. In 2013, when he was asked by CNBC’s “On The Money” hosts what investors worried about severe market changes should do, he said “I ‘d tell them don’t observe the market closely … the cash is made in investments by investing … and by owning great businesses for long periods of time. If they purchase great businesses, buy them over time, they’re going to do fine 10, 20, 30 years from now.”
4. Make tax-conscious investment decisions. Over half of high-net worth investors agree that investment choices that factor in tax implications are better than pursuing higher returns aside from the tax consequences, the U.S. Trust study reasoned. That’s because, as it is put by McBride, “what actually counts is net pay — how much you are truly netting after taxes” what’s more, “bad tax direction on your own investments can lead to having to give up as much as 40% of your gains each year”.
Typical investors can heed this advice by investing their retirement savings in tax-advantaged plans like a 401(k) or IRA, saving for their child’s faculty in a 529 plan, or socking money away into a flexible spending account.
5. Invest in tangible assets. About half of high-net worth investors say they’ve some tangible assets like investment in farmland or property that can generate income and grow over time in value. There are merits to real estate as a diversifier and income source; it’s precious to a well rounded portfolio,” says McBride. Nonetheless, what makes up asset allocation is ’sed by someone and what strength classes they use beyond stocks and bonds should really be a selection that is customized, says CEO of the Wealth Consulting Group in Vegas, Jimmy Lee. “For example, if someone owns lots of real estate it may not be prudent for an adviser to suggest buying more through them. ”