How Do Millionaires Invest Their Money?

By Michelle Clardie on 08/24/2023.
Reviewed by Dan Gatsby .
Millionaires have to take a multi-prong approach to money; they have to protect their existing wealth while simultaneously looking for investment opportunities with growth potential to further increase their net worth and potentially build generational wealth

So, how do millionaires invest their money to both keep it safe and grow it? 

In this article, we’re going to explore specific millionaire investment strategies to help you achieve this financial balance.




How Millionaires Invest Differently than the Average Investor


It is difficult to pinpoint how millionaires invest differently than everyday investors because millionaires come from varied backgrounds. 

Some were born into money. Some started investing early and took advantage of compounding interest to amass their fortune. Some learned the secret to becoming a millionaire through real estateand never looked back.

But we can make a few generalizations about how millionaires invest their money differently than the average investor:

  • They have access to opportunities reserved for accredited investors. These opportunities can potentially provide greater returns than publicly-available investments. 

  • They need larger cash reserves. As millionaires typically have greater expenses and assets that require more money to repair and replace, they need to keep more money available than most people. 

  • They can earn higher interest rates by keeping higher account balances. Banks often offer account types that pay higher interest rates in exchange for retaining a higher balance. 

  • They are more likely to need professional assistance with their finances. Millionaires are more likely to hire financial advisors, tax accountants, and estate planners to make sure their finances are well-managed.     


Where Do Millionaires Keep Their Money?


High-net-worth individuals are careful to keep a certain amount of money entirely liquid (as cash and cash equivalents) so that it can be accessed at a moment’s notice.

This money is often divided into an “operating fund” and an “emergency fund.” 

An Operating Fund (Checking Account)


The operating fund is the bank account that cash is regularly deposited into and withdrawn from. This is typically a simple checking account. Income (which could be both earned income and passive income) from salaries, business ventures, and investments goes into the account, and money is withdrawn to pay living expenses like housing, food, and transportation. 

The balance in this account may be rather large, depending on how great the millionaire’s cash flows are. 

An Emergency Fund (Savings Account or Money Market Account)


The emergency fund is the bank account that holds cash reserves until they are needed for an unexpected expense. Car repairs, urgent medical procedures, and unanticipated appliance replacements can all be paid from this emergency fund. The emergency fund is typically kept in a savings account or a money market account (not to be confused with a money market mutual fund, as we will discuss shortly).

The balance in this account depends on the account holder’s risk tolerance. A less cautious person might keep three-to-six months of living expenses in this account while a more cautious person might keep a full year’s worth of living expenses here. 

FDIC Protection


Checking, savings, and money market accounts are all FDIC-insured up to $250,000 per depositor. This insurance protects the account holder’s funds, ensuring that the funds are safe, and allowing millionaires to keep their money in these accounts with confidence. 

If the account balance is over $250,000 per depositor, the account holder can open a separate account, which will be granted the same protection. 

Investment Strategies of Millionaires


Once assured that a portion of their money is protected, millionaires can take advantage of investment opportunities to grow their wealth.

Before we discuss specific strategies and investment types, it is important to address the concept of an “asset mix.” Simply put, different asset classes come with different levels of risk and different levels of reward potential. So, rather than placing all their investment capital into a single asset class, millionaires will divide their capital among different asset classes to create a well-rounded, diversified portfolio.  

Typically, the younger an investor is, the more risk they can afford to take. As a person nears retirement, financial protection becomes more important than aggressive growth, so investors tend to move money into lower-risk investments as they age. 

Keeping this asset mix idea in mind, let’s count down the five most popular investment strategies used by millionaires.

5 Low-Risk Securities


Low-risk securities, including money market mutual funds, CDs, municipal bonds, and treasury bills give millionaires a means by which to grow their money a bit without much risk of losing their capital. 

The returns aren’t much, but they can at least help investors keep pace with inflation so they won’t lose any purchasing power over time. 

Risk: Low

Reward Potential: Low

4. Private Equity and Hedge Funds


Private equity investments and hedge funds are both unavailable to the general public. Rather, they are accessed primarily through personal connections. Many millionaires have a network of business owners, money managers, and other investors who can introduce them to private investment opportunities like these. 

Millionaires may be invited to invest in private companies, giving them a share in private equity. Or they might seek out a hedge fund, which is a group of private investments that are actively managed by a hedge fund manager. 

While the reward potential can be high, the risk can also be high due to the lack of oversight and transparency often associated with this asset class.   

Risk: Moderate to High

Reward Potential: Moderate to High

3. Alternative Investments


The “alternative investments” class covers everything from precious metals to collectibles to digital assets. Essentially, all assets outside of traditional securities could be considered an alternative investment. 

Millionaires have the capital to pursue alternative investments that most interest them. Are you a wine lover? You could invest in wineries directly or trade fine wine collections. Are you a futurist? Maybe you want to purchase virtual real estate in the Metaverse.

Your options are limited only by your imagination. But for some direction, take a look at our top 15 alternative investments. Just pay close attention to the risk/reward which can swing from low to high, depending on the specific investment.

Risk: Low to High

Reward Potential: Low to High

2. Stocks


A staple of any millionaire’s portfolio, stocks are a traditional financial instrument that can offer long-term growth and fair liquidity.

Stock market investing can be risky when engaging in short-term trades. Day traders, for example, spend their days watching for small price changes that allow them to buy low and sell high. And they can get burned when a stock price dips and fails to rebound quickly. 

But, when investing for the long-term, stocks come with a reasonable risk/return ratio. You may hear anecdotes of people losing everything or making a fortune in a lucky trade, but each of these scenarios is unlikely.  

To mitigate the risk of investing in stocks, choose stock-based index funds over individual company stocks. Index funds are bundles of stocks, which means you can own shares in multiple companies by purchasing just one share of an index fund. This provides instant diversification and prevents any one company from dragging down your entire portfolio.     

Risk: Moderate

Reward Potential: Moderate

1. Real Estate


Real estate consistently ranks among the best high-net-worth investing strategies available. A highly flexible asset class, there are many different paths to grow your wealth through real estate. 

Firstly, most millionaires own their homes. Buying a home allows you to build equity, owning a greater share of the property until your mortgage debt is paid in full and you own the property free and clear. For the average American, their home is the greatest financial asset owned. But millionaires build on this ownership equity through additional real estate investments.   

Take long-term rentals, for example. This could be as simple as purchasing a rental property or as complex as developing a multi-family structure from the ground up to rent out. In either case, you benefit financially in four different ways from a long-term rental property:

  1. As the property grows in value over time, your net worth increases.
  2. You earn tax benefits from real estate that reduce your annual tax liability. 
  3. As your tenants pay down your mortgage debt, your net worth increases.
  4. Rentals create passive income from real estate, allowing you to live off the rental income from your investments or reinvest that income for exponential portfolio growth.     
If you don’t wish to commit to long-term rentals, there are plenty of other options to consider. You could, for example, invest in short-term projects like home flips. Fix-and-flips offer quick returns, allowing you to get in and out of a deal fast. 

Or, if you’re looking for a more passive alternative, there are multiple ways to invest in real estate without buying property.  

Not only is real estate less volatile than the stock market, but it’s also a lower-risk investment than many people realize. If you’re not already holding some of your wealth in real estate, you’re missing out.

Risk: Low to Moderate

Reward Potential: Moderate to High




Invest Alongside Millionaires with Gatsby Investment


Gatsby Investment is a real estate investment company that pursues several strategies to earn outsized returns for its investors. In fact, investor returns averaged an impressive 24.22% per year from 2017 through 2022! 

If you are interested in building a real estate portfolio hassle-free, consider joining the 12,000 members who invest alongside Gatsby in unique real estate deals. 

You’re welcome to learn more about Gatsby and review the real estate investment opportunitiescurrently available.    

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