Contrary to popular belief, many of today’s multi-millionaires were not born into wealth. The recent U.S. Trust Insights on Wealth and Worth survey discovered that 77 percent of those with investable assets of $3 million or greater grew up with average wealth at best (middle-class or below). A surprising 19 percent grew up in poor households.
If they weren’t born into it, what is it about the wealthy that allows them to achieve and maintain that status? The survey highlighted common habits, including the seven important characteristics listed below.
1. Investing for the long-term
The majority of the multi-millionaires surveyed followed conservative investment strategies. Rather than try to time markets or engage in high-risk investments, they build wealth over time through buy-and-hold strategies and steady gains.
This dovetails with a disciplined savings approach that inherently minimizes risk. You don’t achieve high net worth by blowing money with undisciplined spending.
2. Opportunistic and optimistic investing
Most multi-millionaires are optimistic investors and do not fall prey to market fears. The fears of others create market opportunities for the wealthy.
Almost 60 percent of respondents maintain more than 10 percent of their portfolios in cash to be able to take advantage of such opportunities to go against the tide, and 25 percent of the respondents have over one-quarter of their portfolios in cash.
In short, the wealthy understand value buys and are not afraid to pull the trigger on such deals.
3. Clever use of credit
The wealthy understand that debt is not inherently bad if it is part of an overall strategic plan. When managed wisely, credit can be used as a wealth-building tool — and 80 percent of the survey respondents believe they are capable of using credit to their financial advantage.
4. Diversification through tangible assets
Just under half of wealthy investors keep part of their investments in alternate tangible assets to complement their stocks and bonds.
Real estate holdings, fine art and similar holdings appreciate in value over time and provide much-needed portfolio diversity.
5. Considering tax ramifications when making decisions
More than half of the respondents agreed that assessing tax ramifications in investment decisions is preferable to simply maximizing returns without considering the tax effects.
It is important to understand the tax rules as they relate to investments and use them as factors in formulating a sound investment strategy.
6. Strong values
For the wealthy, useful habits were formed early in life. Parents of budding multi-millionaires encouraged their children to find their own way in life within well-constructed boundaries that emphasized traditional values.
These values show up in varied ways, from disciplined saving and investing practices to stable, long-term personal relationships.
The old stereotype of the money-hoarding multi-millionaire is refuted by the survey results.
A majority of the respondents cited a family tradition of philanthropy that carries influence in their later life. If you learn to appreciate giving when you have less to give, it reinforces the importance when you have more to give later in life.
You may not be able to exercise these habits to the same effect as multi-millionaires, but you can (and should) still apply them at the lower scale.
Principles such as the good use of credit and a long-term investing strategy are even more important when you have less money to work with.
Most of the multi-millionaires in the survey started by applying these principles on the smaller scale in order to build their wealth.
Perhaps you can, too.
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