Accumulation of real wealth doesn’t happen by accident. And the rich usually don’t get that way by chasing hot IPOs or mastering day trading. Rather, they build bases of durable assets by following fundamental, disciplined and boring rules and habits.
This may take some of the sparkle out of the magic of striking it rich in the market. But it’s actually good news. The core strategies the wealthy use aren’t some code known only to an ultra-secret club. Nor do they require you to be wealthy already to leverage them.
The difference between how the wealthy invest and how most retail investors invest isn’t the tools. It’s how those tools are used.
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Anyone can buy low-cost ETFs. But it takes discipline to use that asset like a seasoned millionaire or billionaire would. Understanding these core investing rules separates durable wealth-builders from a market full of churners and burners.
Here are seven rules, habits and behaviors you can borrow from the wealthy to grow your portfolio right now.
Take a holistic view of your accounts
The key to investing like the wealthy is to understand what you have – all of what you have. Wealthy investors don’t view their investment accounts in isolation. They look at all of them, from their bank checking accounts to every one of their retirement accounts.
The best way to approach this is with an online tool that allows you to aggregate all of your accounts in one place and then group them into categories, says Justyn Volesko, co-head of the family office practice at Cerity Partners. These categories can include brokerage accounts, bank accounts, retirement accounts, and any other account type you have.
“This will provide a holistic view of your balance sheet and allow for easier mapping of investment locations to minimize tax drag,” he says. (More on tax-efficient location planning later.)
Diversify across asset classes, not just within them
You’ve probably heard “diversify, diversify, diversify” a thousand times. Most retail investors stop at diversification within their stock and bond holdings.
Wealthy investors take it a step further: They include alternative asset classes, such as real estate, private credit and private equity alongside public equities, says Yieldstreet CEO Mitch Caplan.
“True diversification means holding investments that don’t all react to the same market forces,” Caplan says.
“When public markets decline, some private market investments continue generating income based on fundamentals unrelated to daily stock prices.”
(Image credit: Getty Images)
Invest in public and private markets
Indeed, wealthy investors know how to exploit opportunities in private markets.
“Wealthy investors and institutions allocate 20% to 30% of their portfolios to private markets – private equity, real estate, private credit – while most individual investors have virtually zero exposure to these asset classes,” Caplan says. “This creates a structural advantage” as “private markets offer different return profiles, lower correlation to stock market volatility, and access to income-generating assets that don’t trade on exchanges.”
Private markets once were largely off limits to smaller investors who couldn’t afford entrance fees. But this is changing. New platforms including Republic, StartEngine and Yieldstreet are making private markets more accessible with lower minimums and better liquidity.
“This doesn’t mean every investor should rush into these investments or that private markets belong in every portfolio,” Caplan adds. These investments can be risky and highly illiquid. “The most important rule wealthy investors follow is structuring portfolios to capture returns from multiple sources.”
Focus on income generation, not just appreciation
The allure of a skyrocketing stock is hard to miss. The wealthy understand the power of a quieter, often more reliable wealth-generator: income.
“Wealthy investors often prioritize assets that produce regular cash flow – real estate that generates rent, private credit that pays interest, businesses that distribute profits,” Caplan says. “This income compounds over time and provides stability regardless of market conditions.”
Income can also provide a hedge against inflation and help stabilize your portfolio during market volatility. You don’t need to invest in real estate or private credit to generate income, either.
Dividend stocks and bonds can also pay regular interest, although the former may be less reliable because dividends are not guaranteed.
(Image credit: Getty Images)
Invest as tax-efficiently as possible
The wealthy understand one of the most important principles of wealth accumulation: It’s not what you earn, but what you keep that counts. Every dollar spent on taxes or fees is one less dollar that can compound on your behalf.
For the wealthy, “each investment decision is driven as much by its tax impact as by market outlook, and that discipline meaningfully improves long-term results,” says Gary Quinzel, vice president of Portfolio Consulting at Wealth Enhancement.
Tax-efficient investing means more than just maxing out your retirement contributions, although you should definitely do that. Wealthy investors use that holistic account view to optimize not just their assets, but also their asset locations. They hold their most tax-inefficient investments in their most tax-advantaged accounts, Quinzel says.
For example, you could keep high-turnover investments or ones that produce ordinary income in retirement accounts. Meanwhile, your low-turnover investments and tax-exempt income generators can go in taxable accounts.
“These simple but powerful steps can save investors thousands in taxes and boost after-tax returns over time,” Quinzel says.
The wealthy also know not to let market dips go to waste. They strategically sell investments that have lost money to offset gains or part of their ordinary income on their tax bills.
This practice is known as tax-loss harvesting, and it’s not as complicated as it may sound. In fact, many robo-advisers now offer the service automatically, making it accessible to all sizes of investors.
Be relentless about costs and fees
Keeping as many dollars as possible also means not burning money on high-fee investments. Even the wealthy, who arguably have plenty of money to burn, know how to be frugal where it counts.
For retail investors, this means focusing on low-cost investments such as index funds and ETFs. Avoid any mutual funds with hefty sales loads or 12b(1) fees. You should also watch out for high-commission products as well as those with fine-print fees like surrender charges.
When wealthy investors use financial advisers, they often opt for fee-only fiduciaries. These professionals don’t earn commissions for the products they sell, which helps eliminate conflicts of interest. They are also legally required to put your best interest before their own.
(Image credit: Getty Images)
Leverage professional guidance to buy back time and peace of mind
Leveraging professional guidance also helps wealthy investors adhere to an essential truth: “Time is money.”
The wealthy view their time and well-being as non-renewable assets. They may be highly involved in their investment strategy, but they rarely spend hours a day tracking markets or obsessing over daily portfolio performance. Instead, they outsource their anxiety to a trusted financial advisor.
For retail investors, this may mean using a robo-adviser or automated investment strategy, perhaps dollar-cost averaging. You could also self-impose rules that you will only check your account on a predefined schedule and you will not obsessively watch the news.
The media’s job is to sensationalize events and spark an emotional reaction. They want to trigger a stress response because, to your brain, stress equals importance. And that’s a poor basis for sound investing.
So, yes, time is money. But inner peace is priceless.
