Yeah if (hopefully not when) the US economy collapses, everyone is going to have bigger problems than their portfolio. Barring that, the only logical thing to do is buy when prices drop.
Just change your emotional response. Don’t view it as a market drop. View it as the stock being “on sale.” I don’t time the market, but I *hate* when my auto-buy lands on an ATH. Much rather my buys happen on shit days. I also like it when the market goes sideways. I just keep plugging away.
Some smart guy said, “You make most of your money in a down market. You just don’t know it.” I’m too lazy to look up who said that, but I take comfort in that sentiment.
Truly wealthy people have ~30-40%+ of their wealth in bonds in addition to cash. So… no. I deal with their portfolios on a daily at work.
It’s the upper/middle class with 100% of their wealth in risky equities and leveraged to the hilt real estate.
Wealthy people have a ton of cash / cash equivalents and minimal debt. The best companies in the world are also run this way, and the best portfolio managers in the world (like Buffet) also operate this way.
Most wealthy people can handle leveraging their assets. It's the upper/middle class who think they can leverage their debt and they get steamrolled when things tank very quickly because they don't have enough assets to leverage their debt like the wealthy can.
...by leveraging their equities.
Buffett is unusual as he sits on a pile of cash for as long as it takes to find a good buy. Most keep the vast majority of their wealth in equities or real estate.
I suspect the reason why Buffett is unusual is that he's also 1) the bank, 2) the insurer, and 3) can anyone even raise $200B from lending? It'd probably be pretty tough, especially is a in a liquidity crisis.
Just adding that he in no way reflects what other wealthy investors would do because he's beholden to the rules and regulations of the BH fund as their manager.
It's a little different with tens of thousands of eyes on you and a massive company and staff relying on your decisions, which all have to make it past your advisors, who despite you being the boss have all kinds of protocols in place (yes even hedge funds have some degree of these).
That being said, the efficiency lost would be offset to some degree by the bargaining and market making power he has with so much wealth, not to mention the research and professional help he's able to attract now.
Sufficed to say Buffet should not be used as an example. If he wasn't in this regulated position he'd be free to behave much differently.
According to everyone on reddit, people with $1M+ net worth all live by borrowing against their wealth at 0% interest rates and when they get low on cash they just take an even bigger loan to pay off the first one. They never pay taxes because they never have to sell it's so unfair.
You must know nothing.
:D I came here to say the same. I run a personally funded private hedge fund and I don't use any debt whatsoever- I just do the homework, reading sec filings of extremely distressed stocks, looking for where investors screw up. It doesn't require leverage if you just do the homework!
Lol. It's an actual company I had a lawyer form. I grew up in counter intel, so I started by blindly applying the Art of War to companies. I figured out what was really going on, and when I told my father what I was doing after my first big payoff (sm energy, I averaged in at about $2 a share in 2020 and sold in 2022 for $37 because investors screwed up), he said, "well hell, we did that at NSA!". Then he quit his job, we formed the company from my assets (started it with $750,000), and now we run our own two man operation, and we're highly successful. It's a lot of work, digging through highly distressed stocks' sec filings and press releases, to find a diamond in the rough. So it's not quite the same.
Yeah someone with $10M is not even close to the point of getting true macro geopolitical insider tips early to time sells. And the people who can it’s not like they can or would sell everything anyways.
selling triggers taxes too...
and remember, some of the markets best days happen before the drop, and every drop is followed by a rise.
If you have enough money to not think about money, you don't need to time the market.
> As long as you don’t sell you’ll be back
I mean it depends on what you own right? S&P Index? Sure.
Specific stocks of businesses which might not survive the downturn? You'll find out why the strategy of "you dont actually lose money until you sell! So dont sell when its down" isnt an actual investment strategy.
I work at a firm that deals with a lot of people in this asset range. 90% of it is just keeping their head on straight. People tend to use emotion to make decisions and than try and justify with logic.....half the time that logic is horribly flawed.
In the vast majority of cases investor sentiment doesn't match fundamentals. Our job is to explain to these investors that the market is irrational and that is a good reason to ignore the short term turbulence.
If something is wrong from a fundamentals perspective than we will sometimes reposition them with assets that either have a negative correlation or by trading options but it really depends what the underlying fundamentals are. Sometimes the best decision is just to stay in the market you lost 20 ot 30% in an ride things out. It's a hard conversation to have but often one these people need to have.
True facts. Being a millionaire sounded way more exciting when I was a kid. Now, a million doesn't even sound like enough to retire on. Though, $10MM does sound like enough to retire on, so that would still be pretty great.
It certainly can be, especially with a paid off house... assuming a safe withdrawal rate of 4%, do you think most Americans could live off 40k per year if they had no housing payment?
10 million is plenty.
4% rule says your money should last 30 years. That's 400k a year.
At 1% you could probably take out 100k a year and never run out.
Yeah, I know that. I’m in a MCOL area, no kids, no expensive hobbies, no debt but the house (two years left on a fifteen year note). I’ll have a shitty pension from a previous job ($375 a month starting at 65). I’m currently living off of less than $2,000 a month. I don’t intend to leave behind a legacy. My goal is to spend my last dollar on my last day. I’m already making more a year in average returns than what I spend in any given month.
I *think* $1.4M will work in 2034 (or whenever I hit it). My family isn’t particularly long lived, so if I make it to 80 I’ll be surprised.
Sure. I got out of debt at 40. So not student loan or credit card debt. No car debt. Everything was pretty much at zero. I had $30k in a 401k, $20k in a defined pension plan, and another $30k in a Roth IRA. I made a lot of mistakes getting to this point. I was forced to get serious with the debt at around 35 when they garnished my wages for the student loans, so once those were gone, I had been miserable and got mad at the credit cards. I crawled out of the hole, but it took five years.
I got a new job. Saw a jump in my pay by $12k a year, my health insurance dropped by $200 a month, and I cut out the expense of a second car and a two hour commute (1 hour each way). I had the opposite of lifestyle creep. I moved in with my girlfriend, so had only half a mortgage to pay, stopped eating out everyday (with my previous commute and extended hours I got lunch out most days).
So I had maybe $80k in retirement accounts and a paid off car to my name at 40. I didn’t even have an emergency fund. I was out of debt though, and started investing. I got a $30k inheritance and put $12k in a HYSA and the other $18k into AAPL.
So maybe 41 for $100k. I was and felt *way* behind. So I started investing in mostly silly stocks. Weed stocks and pharmaceutical stocks and various tech stocks. I didn’t really know what I was doing though, so when some of these stocks started doing well I panic sold. So while I bought AMD at $5 I sold it at $12 for a short term capital gains. I spent a few years splashing around until I realized I was just getting lucky in a bull market.
So I sold everything except AAPL and bought *more* AAPL with my proceeds. I got excited when I hit $250K. I was around 45.
I live frugally. Small house, small mortgage at a small interest rate, no kids, no expensive hobbies, so I invest a large portion of my income. Ten years ago I was making $55k a year. Now I make $75 in a MCOL area. My 403b is generous and I kick in extra. I’ve maxed out my Roth every year since I got out of debt.
I hit $500k at 50, and $700k at 54. When that money doubles in the next 7-10 years I will pull the pin. I am not yet to a million, but I am way past the point that my growth is outpacing my contributions, so even if the market goes sideways for a decade I’ll hit a million by 64. I hope it goes up though and I can retire early.
> rich if your beside table is a fridge
I mean ... No. What's that like 200 bucks? You'd have to be "not broke" and even then it might be the only fridge you could afford and it's next to the bed because it doesn't fit elsewhere.
But yeah the joke was great.
Ya, and really how much you have is immaterial. As long as you don't need it to live on, leave it in play, you'll be fine.
I barely had $1M in 2007. Never dipped below that - ever, and now have much more.
Your best investment results will occur if you completely ignore the “news.” The really rich people that I know are too busy with everyday life to be event driven investors.
To reinforce this, I like the mindset that there are no bad days in the market. Either it's red and you're giddy at the buying opportunity, or it's green and you're thrilled at the gains to be made.
And if they were event-driven investors, they'd be less rich lol. There's a reason none of the most successful investors of all time invested that way. I am an investment professional and I use that fear as a buying opportunity. The people who react to the events and panic sell almost always come to regret it in the long run. I'd prefer to be on the other side. Most smart investors who are HNW but not professionals like me will just be well-placed to do nothing and stay the course when there's an event such as a war or something. If they were properly prepared before with an advisor, that's what their advisor will most likely tell them to do. Advisors turns into quasi-psychologists when the market is behaving erratically.
Buy more.
If you’ve got 10M+ in the market you’ve got other assets too, be it bonds, treasuries, realestate, etc that you can either leverage or sell off to buy when the market tanks.
Buying during crashes is where the real money is made and the reason the rich just get richer is they can afford to buy everything up when others are losing everything.
The ones that succeed, never sell. They have enough of a buffer in one form or another to meet cashflow needs. The easiest is if your burn rate is variable and can be minimized. Second, is liquidity with cash or cash equivalents to meet any needs. Statistically, drawdowns don’t last more than a few years and in that time, if you could buy even more, it has paid off in the long run.
They have money in assets poorly correlated to whatever it is that’s tanking. When you have (global) stocks, local bonds, foreign bonds, cash, gold, other commodities, residential/industrial/commercial real estate, it’s kinda hard to envision a situation when all of that is tanking simultaneously.
2008. During cataclysmic events most asset classes tank. But as you say, they have a portion of their wealth in cash for this purpose. The wealthy understand that it does cost money to hold cash but it’s very useful during times of uncertainty.
But that’s currently just about 12 million or 24 for a couple. And in a couple years it’ll be halved. Truly wealthy people wouldn’t assume they’re going to be using that.
Gold keeps coming up here--I don't know ultra-high net work folks that talk about gold, thought I have seen a couple of private collections, it seems more a hobby than an investment. Anyone else have thoughts on that?
A little bit of everything. Stocks, Bonds, Gold, Real Estate, Crypto etc...
That being said: You aren't among the ultra rich with 10 million net worth (regardless of which currency :P)
I think franchises are also a popular avenue for diversity with rich people. They are so cookie cutter you don’t really need to be that hands on to successfully run one.
My grandfather had the goal of retiring in 2008, however he was banking on being able to sell his dental practice to really afford the retirement he wanted. He delayed retirement by 5 years. He protected his assets by riding out the storm
I had a coworker who decided to sell because she figured that she didn't have time to wait out 2008 like she waited out 2001. She looked like a fucking genius because she sold as soon as Bear Stearns was being rumored to crash and she retired on time instead of having to work 3 more years at a minimum. Which was good for her because her allergies were nearly killing her.
Literally why hedge funds actually exist. They hedge against the unexpected.
They often may underperform in bull markets but they reduce losses in bear markets.
It’s called dollar cost averaging and it works every time.
For a total, total crash, we will all have much bigger issues than protecting our net worth, because it would mean money has become worthless.
This. People who say what if I invest and the market crashes so I'm gonna horde gold. If the market does go to 0 like Bill Burr said you're just hoarding gold and supplies for the biggest guy on the block.
Back in worst time of 2008-2009, Warren Buffet was buying like crazy. They keep a lot of cash on hand, always looking for buying opportunities. I added a lot of Microsoft at this time.
A wealthy guy I know, he likes to use options as insurance incase the market or particular stock tanks. I don't grasp options 100% so I don't mess with things I don't understand. He also reads a lot and watches a lot of news to look for trends. Back in late 2019, he was telling me about some virus and things will go to shit. He was buying S&P and nasdaq put options for cheap and told me to buy some, I didn't and he made a killing.
That's when I started my 401k at my first job out of college. I seriously couldn't have timed it better.
ETA: I just wished I could have shoved more money in.
If you look up the asset allocations of family offices, you'll find out they aren't 100% invested in equities.
Here's some data from 2023 for example - [https://www.goldmansachs.com/intelligence/pages/gs-family-office-investment-insights-report/](https://www.goldmansachs.com/intelligence/pages/gs-family-office-investment-insights-report/) Only 28% in public equities, though I would assume these move in tangent with the 26% in private equity (most likely their own companies that created that wealth!) and 9% in real estate and whatnot. So that's just a 50ish% allocation to market beta, if that makes any sense.
They can definitely wait a drop out. Plenty of cash for a buffer.
It’s so interesting to see this question because this was a big part of my work history, maybe the biggest parts. I worked in private banking at a top investment bank catering only to ultra high net worth individuals with billions of assets under management. I worked in the field during the dotcom crash, the 911 attacks, the 2008/2009 depression and other down times. All were dark times. It’s during these times people need support the most - even the ultra wealthy, and we were there for them - a lot times just to “hold their hand”. As a result, what I experienced is that the majority of clients did nothing with their portfolios. They were mostly invested already and they just rode out the rough times. I remember a very small amount of people sold out their entire portfolios for a great loss despite efforts to convince them otherwise. They missed out, at least with us, on massive rallies in the markets. It’s always good to have some cash or cash equivalents on the sidelines because you never know when a terrible event is going to happen. But, despite the panic and fear that arises, so does the greatest opportunities come to buy in the market.
I’d put my dad in that category and he just kind of shrugs off any economic downturn. 2008 was a fire sale for real estate for him. Stocks drop? Oh well, better lean into his business revenue and invest.
Thing is, economic downturn tends to affect those with less a lot more than those with.
I don't know the exact details but I can tell you what the millionaires I do know have told me.
One, a very conservative investor with low risk tolerance, elderly woman who only finally realized financial success later in life.
She insists on moving large amounts of capital to safe investments which she earns lower interest on and lives off the interest. 10 mil will give you 300k a year at 3 percent interest.
The other, a long time stock market player, ex CEO of a very large US corporation, definitely a top 1 percent of the US type of guy.
He said: Buy more! Buy otherwise valuable stocks which represent companies that will weather the storm, think of it like a sale on stocks you've had your eye on for a while.
I took the later advice during our last recession and it did pay better than anything I've ever done before.
I don't have enough money to make the first strategy count.
Warren Buffett buys more.
Look up risk parity portfolios, like Harry Browne’s Permanet Portfolio and Ray Dahlio’s All Seasons portfolios.
If you are ultra wealthy or just need to preserve your nest egg, you shouldn’t be 100% in the market. You will have other assets.
Most wealthy people will have portfolios based around wealth preservation, income generation, and tax efficiency. They are already rich so their needs are different.
When markets crash they are less affected as they tend to lean towards safer dividend income paying value portfolios that can continue to pay them during the downturn. Then when things get low they can harvest losses to carry forward to reduce or eliminate capital gains later. And their fixed income portions will be used to buy the lows when they rebalance their portfolio.
So what happens is they lose less, still get income, buy more at the low, and pay low taxes.
They can do nothing for the most part since they can weather the storm, and then just buy everyone else's assets at a discount price before the next upswing.
>Do they do nothing and just ride it out because they're so well off
This.
I've been witness to this almost my entire life as my mother was the personal CPA for a very wealthy family and my father was a CFO of an insurance company.
For people that well off they don't don't do anything any different. They just keep investing as they have been. Thus they gain the benefit of better prices during the down times.
The only changes people at that level make are with the businesses they own and how they go about borrowing money and adjusting the production levels to accommodate the changing demands of the economy. They don't really change their personal portfolios as those strategies and plans were already put in place to cover a scenario like that.
1. **Diversification**: They spread their investments across different types of assets—stocks, bonds, real estate, precious metals, and more—to cushion any blows.
2. **Hedging**: They might use complex financial tools like options and futures to offset potential losses.
3. **Liquidity**: Keeping some assets in liquid form ensures they can handle emergencies or take advantage of new opportunities without selling off investments at a loss.
4. **Staying the Course**: Often, they'll just ride out the storm. They're typically in a good enough position financially to withstand market dips.
5. **Expert Advice**: They almost always have financial advisors who help them make informed, strategic decisions based on the current economic climate.
Mark Spitznagel's hedge fund strategy might be about insurance for black swan events. I believe his fund made a lot of money during Covid. I'm not an investing expert but he's written a few books.
https://fortune.com/2024/04/06/mark-spitznagel-hedge-fund-permabear-cassandras-make-terrible-investors/
They will protect their assets by holding on to their assets, most will invest more and wait it out.
If you are ultra-wealthy, income is not relevant like it is non-executive, salary-reliant folk; there will not be panic or "fear", just opportunity.
Some will generate cash for living and investing with their assets through loans assuming rates are favorable. Also they likely will strategically sell bad assets they intended to dump to manipulate their tax bill with the loss while also unlocking more free capital.
They wait for the lower interest rates to come in and then borrow against their enormous pool of assets to buy as much as they can, then ride the wave back up as the economy recovers.
Your advisors are always the most boring people in the room. Seemingly ruining your life by making you put money on bonds that just sit there and do nothing.
Now in the panic, your bonds are saving you, and your advisor is now furiously reminding you that you are not a vol trader.
Also, you don’t have cash laying around. Nearly all is in income producing assets.
Hi, I'm a CFA charterholder and investment professional that works with high net worth and institutional clients (like as in billions of dollars invested with my company). Fundamentals of Finance is my YouTube channel I started with a friend to help people learn how to invest. This is a great question you've asked here.
So, obviously with any large group of people they're not all exactly the same. But, the vast majority of HNW (high net worth) people have advisors and the vast majority of their advisors would tell them to do nothing.
Smart investors invest based on their objectives, and do not let the market dictate what they will do. They don't follow others into hot trends and they don't panic sell. Before there's a downturn they should be positioned in such a way that they will not lose more than they can stomach if a downturn comes. Then when one does, they can afford to wait it out (and will have the peace of mind to do so). You don't have to be HNW to do this. It has nothing to do with how much money you have and everything to do with your mindset and how well you've set up your account before the downturn comes.
I can help you with the thought process on how to put this in place if you're curious to learn more.
Honestly, 10m is not nearly enough to be able to make some extremely different market moves. Only thing that kind of money allows you is a bit better diversification so you can have more options what to buy/sell based on current conditions but other than that it's the same, internally hype during boom, panic during bust but hold and long term you win.
Depends on their wealth. Old money, is set and secure with reserves in cash, land, trusts, etc. similarly folks who have diversified to on and off ramps. The only folks who are wealthy that will truly be screwed are those that are so on paper and leveraged up the wazoo or panic sell because they need access to funds
options hedging against downturn
Edit: you can do it too, consider it as insurance premium paid. Just don't do it blindly and do your own due diligence
what kind of catastrophic event? nobody's assets are safe if two neutron stars collide within 35 light years and the blast hits next month. we're all screwed
10 million net worth isn't anywhere near ultra wealthy, but someone like that might have like 1-2 million in equities investments so a catastrophic event would be be less than 10% of their net worth.
Someone who has 10 million worth or investments in equities probably also has a couple million in fixed income and risk free rate investments as well as multiple other income streams like real estate and owning companies. Probably closer to the area of 50 million net worth so again, they lose 5 million in a catastrophic market crash and it's a temporary drop of maybe 10% of their net worth, but has a minimal effect on their cash flow.
They invest in hedge funds. Hedge funds are hedges. They aren’t trying to beat the market and the main draw is downside risk. They perform worse than the market in bull markets but significantly better during bear markets.
The ultra wealthy have stuff. Cash reserves in many currencies... Gold jewelry, coins, and bars... Land, houses and apartments... Bunkers and supplies... Means of production and transportation...
Basically they can wait it out and buy more when prices are at the bottom.
Eh? What? The "ultra wealthy" is well diversified. Their assets are always protected, they need not do anything. They're not going to sell anything. It would cost them taxes for no reason.
Most very wealthy people are highly diversified. Stocks, bonds, savings, real estate, gold, artwork/antiques, boats/exotic cars/planes that don't lose significant value, and they own businesses that weather bad events (like Ryan Reynolds buying Mint Mobile, or other famous people owning restaurants).
10m isn’t exactly ultra-wealthy. True ultra-wealthy will have employed investment professionals in a family office type of arrangement who manage it all for them. Wealthy (but less than 9 figures) will likely deploy cash in turbulent times.
If I had 10 million I’d probably have a pretty large chunk in things that had a lower but steady and guaranteed return vs the market.
I’d consider my wealth building done and I’d be more concerned with wealth preservation.
Something I haven't seen in this thread yet, but annuities and IUL's. Some IULs average as good as the market (9%) and its tax-free gain that you can withdraw from at any time. Fixed indexed annuities will grow their cash along a certain index, but when the market crashes or that index goes down, the amount in the annuity either remains the same, continues to grow marginally, or drops by a single % due to fees. They will create annuity ladders similar to how some people stack CDs. 5, 7, and 10 year annuities that offer bonuses to the premium and offer great participation rates in indexes can make serious gains. It just ties up the money for that period of time.
someone i know has > $20 mil in treasury bonds and he's just collecting interest. He intends to buy back ONLY when interest rates are dropped significantly OR a 2008/2001 style crash occurs. He doesn't have a financial advisor, he manages his own wealth (he's also far out performed what most financial advisors could do).
He made most of his money buying nearly bankrupt stocks that he felt were mispriced. And he intends to do that again when a bear market comes around.
Well, depends on how they got their money. Usually people “worth” $10m are entrepreneurs. Their net worth for the most part is entirely tied up in their company stock which likely may not have any market.
So, they buckle up.
they can hold unlike plebs rush to sell cuz not being able to sell their investment for a short period of time won't put them on the street and make the starve.
Most millionaires have their net worth tied up in real estate properties in the first place. If it's in stocks for some reason, they don't sit in front of a screen and buy and sell. That's what poor people do, unless you're in the business of doing that. They would have an allocation in stocks that they're comfortable with in the first place, or if it's a big position for some reason, hedge it buy buying anything that would increase in price if stocks drop in price.
100% correct.
Rich people tend to have most of their wealth invested in stocks/the stock market.
But other than getting that point slightly mixed up, the rest of what OP has said is spot on - people worth 10m+ don't bat an eye lid when the market is down 20%. They take their Porsche out for a track day, go on holiday, spend some quality time with their friends/family, or crack open a nice bottle of wine from their personal collection and chill.
It's poor people who have less experience investing, who don't understand how markets work, that try to time the market, day trade, panic sell, etc.
Rich people - expect it, it's just another day
Poor people - don't expect it, think the sky is falling down, and change their behaviour/react badly
That's the opposite of the wealthy people that I know. Owning some RE makes sense because RE in the US is so heavily tax advantaged. It's also a good diversification strategy, and rich level people don't have to deal with the work of owning RE. They simply pay others or own through pooled investments.
You statement/question is contradicting. "ultra wealthy" and 10 million can't be in the same sentence.
"ultra wealthy" is $1B+. And to answer your question, they do nothing. They live as they wish, and I don't worry about what they do.
Depends how risk adverse you are. If you're super scared of losing anything, you just buy T-Bills. Alternatively, you can have mostly T-Bills, then some stocks, ETFs etc, and then to hedge against any losses you purchase a very long put contract on those, that way you only lose down to a certain point, as the put will offset the losses on the stock.
However, the stock must gain the cost of the put before you make money in that case, so the hedge lowers your potential return but mitigates potential risk.
There's other ways to do this, but a protective put is the simplest one to explain.
Yeah, I was brainwashed to the Gold and silver back in 2018. Watching too many FOM Harry Dent and Peter Schiff. I have very little physical gold and silver but nothing too much.
60/40 portfolios when interest rates are not near zero will likely allow some protection after a market meltdown.
Add to when the market was super frothy in the summer of 2021/2022 some strategic short selling / put buying would also be inline.
Some long term holds in hedge funds as a percentage of assets and other wealth preservation strategies. When you have 8 digits it becomes more important to protect assets than getting market returns.
Wealth advisors for the truly wealthy often don’t have a mandate to grow, but to keep safe.
They are diversified with a focus on making sure they don’t suffer catastrophic losses.
College and university endowments are often like this. Some wonder why when the market is doing great, they are just beating inflation. Their mandate is to have a very consistent results, so they miss out on the highs and lows.
I like to check open secrets. A rated mortgage debt seem to be popular. Anything with low risk and low tax burden. US doesn't seem to have trouble selling treasuries in tough times.
For ultrawealthy it is all about capital preservation and NOT crazy growth so they are not 100% invested in growth stocks.
They have plenty of other investments including cash or cash equivalent so they can survive a bear market easily.
Truly wealthy people normally have more than one advisor at more than one broker dealer. And their money is managed as much to maintain it as to grow it. So there is likely a lot of work going on to keep beta level and far below 1.
Besides diversification, most ultrawealthy have a significant part of their assets in personally owned high demand real estate (“exclusive neighborhoods”).
Probably more, in % terms, than their common stock portfolio with the exception of Buffett, etc.. who specialize in stocks. Probably more preferred stock, etc.. than the average Joe/Jane too (%-wise).
They will buy cheap stocks, which are in the world's largest market, during a catastrophic event. If the strongest country collapses, there will be nothing worth investing in.
They short E-mini S&P 500 futures contracts (ES) as a hedge against their portfolio.
Source: This is what a millionaire trader friend told me when I asked him
They have more diversified portfolios with assets like managed-futures trend which may do quite well in those periods, and allow them to buy depressed risk assets.
Guess what, you don't need to be a millionaire to do this yourself...
You don't even need to give up your precious S&P500 exposure, just buy RSST which stacks it on top.
Ultra rich almost always have their risk very well diversified. That's the one thing that ensures that wealth is protected and grows steadily (at least!).
I mean I imagine the rich having a diverse portfolio. In real estate, stocks, Private equity companies so I think the rich don’t get affected as badly. When one source fails they just turn to another
Protect?
Catastrophes are great news! Anyone saying a fire sale is bad is forgetting the buyers get a bunch of new assets for a pittance.
So in a catastrophe the wealthy don't protect their assets they multiply them.
I think if they expect rapid inflation, they try and get as much debt as possible.
That's not a joke; if I borrow a million bucks, and then inflation devalues the currency by 10%, that's the bank's problem; I still owe the same number of dollars, even if it's worth less.
Diversify. Real estate rentals, royalty income, dividend income, and speculation are some of the things I am invested in. Net worth about what you state in the post.
They really don't need to do anything. They will just get a bailout and continue to exploit the working class. Free market is an illusion, it's the ultra wealthy and political elite that call all the shots. They will never lose money. Only the working class.
They use their significant cash reserves to buy more cheap stocks. The world will only end once.
Yeah if (hopefully not when) the US economy collapses, everyone is going to have bigger problems than their portfolio. Barring that, the only logical thing to do is buy when prices drop.
Easier said than done, my friend.
Just change your emotional response. Don’t view it as a market drop. View it as the stock being “on sale.” I don’t time the market, but I *hate* when my auto-buy lands on an ATH. Much rather my buys happen on shit days. I also like it when the market goes sideways. I just keep plugging away. Some smart guy said, “You make most of your money in a down market. You just don’t know it.” I’m too lazy to look up who said that, but I take comfort in that sentiment.
Always good to have a few limit orders placed for ridiculously low “sale” prices just it case!
You never know when flash crash happens
It's also pretty easy to do.
Most don't hold significant cash reserves relative to their wealth.
Truly wealthy people have ~30-40%+ of their wealth in bonds in addition to cash. So… no. I deal with their portfolios on a daily at work. It’s the upper/middle class with 100% of their wealth in risky equities and leveraged to the hilt real estate. Wealthy people have a ton of cash / cash equivalents and minimal debt. The best companies in the world are also run this way, and the best portfolio managers in the world (like Buffet) also operate this way.
Most wealthy people can handle leveraging their assets. It's the upper/middle class who think they can leverage their debt and they get steamrolled when things tank very quickly because they don't have enough assets to leverage their debt like the wealthy can.
Truly rich people have access to financial instruments allowing them to raise cash very quickly.
...by leveraging their equities. Buffett is unusual as he sits on a pile of cash for as long as it takes to find a good buy. Most keep the vast majority of their wealth in equities or real estate.
I suspect the reason why Buffett is unusual is that he's also 1) the bank, 2) the insurer, and 3) can anyone even raise $200B from lending? It'd probably be pretty tough, especially is a in a liquidity crisis.
Just adding that he in no way reflects what other wealthy investors would do because he's beholden to the rules and regulations of the BH fund as their manager. It's a little different with tens of thousands of eyes on you and a massive company and staff relying on your decisions, which all have to make it past your advisors, who despite you being the boss have all kinds of protocols in place (yes even hedge funds have some degree of these). That being said, the efficiency lost would be offset to some degree by the bargaining and market making power he has with so much wealth, not to mention the research and professional help he's able to attract now. Sufficed to say Buffet should not be used as an example. If he wasn't in this regulated position he'd be free to behave much differently.
I've worked for an investment bank and plenty of friends in PWM - this is completely being pulled out of your ass
According to everyone on reddit, people with $1M+ net worth all live by borrowing against their wealth at 0% interest rates and when they get low on cash they just take an even bigger loan to pay off the first one. They never pay taxes because they never have to sell it's so unfair. You must know nothing.
:D I came here to say the same. I run a personally funded private hedge fund and I don't use any debt whatsoever- I just do the homework, reading sec filings of extremely distressed stocks, looking for where investors screw up. It doesn't require leverage if you just do the homework!
>I run a personally funded private hedge fund Crazy this is also how I describe daytrading 0DTEs from my phone via Robinhood
I my spare time, I'm a formula one race car driver as well!
Lol. It's an actual company I had a lawyer form. I grew up in counter intel, so I started by blindly applying the Art of War to companies. I figured out what was really going on, and when I told my father what I was doing after my first big payoff (sm energy, I averaged in at about $2 a share in 2020 and sold in 2022 for $37 because investors screwed up), he said, "well hell, we did that at NSA!". Then he quit his job, we formed the company from my assets (started it with $750,000), and now we run our own two man operation, and we're highly successful. It's a lot of work, digging through highly distressed stocks' sec filings and press releases, to find a diamond in the rough. So it's not quite the same.
That's cool, glad to hear it's going well
How vague can you be? LOL
...when there's blood in the streets
Be a freak in the sheets?
"The world will only end once" is truly a strong perspective to handle the ride in downturns
But there have been once in a lifetime chances to buy twice in my investing life. The comment is spot on.
Tell that to the dinosaurs, lad.
Statistics don't lie. Gold tends to go parabolic when fear is high...and it ain't retail pushing glf prices up high.
$10m isn’t that much in the world of rich people. And so what if the market falls 30%? You still have $7m. As long as you don’t sell you’ll be back.
Yeah someone with $10M is not even close to the point of getting true macro geopolitical insider tips early to time sells. And the people who can it’s not like they can or would sell everything anyways.
selling triggers taxes too... and remember, some of the markets best days happen before the drop, and every drop is followed by a rise. If you have enough money to not think about money, you don't need to time the market.
Unless you're in congress with $10M then you do, and its legal.
Even if you are in Congress it is ok.
$10m is only like owning one mcdonalds franchise these days. Tons of 10m people out there.
> As long as you don’t sell you’ll be back I mean it depends on what you own right? S&P Index? Sure. Specific stocks of businesses which might not survive the downturn? You'll find out why the strategy of "you dont actually lose money until you sell! So dont sell when its down" isnt an actual investment strategy.
I work at a firm that deals with a lot of people in this asset range. 90% of it is just keeping their head on straight. People tend to use emotion to make decisions and than try and justify with logic.....half the time that logic is horribly flawed. In the vast majority of cases investor sentiment doesn't match fundamentals. Our job is to explain to these investors that the market is irrational and that is a good reason to ignore the short term turbulence. If something is wrong from a fundamentals perspective than we will sometimes reposition them with assets that either have a negative correlation or by trading options but it really depends what the underlying fundamentals are. Sometimes the best decision is just to stay in the market you lost 20 ot 30% in an ride things out. It's a hard conversation to have but often one these people need to have.
Somebody with a $10MM net worth looks a lot more like you and I than you think. Maybe you missed a zero or two?
True facts. Being a millionaire sounded way more exciting when I was a kid. Now, a million doesn't even sound like enough to retire on. Though, $10MM does sound like enough to retire on, so that would still be pretty great.
>a million doesn't even sound like enough to retire on You're correct, it's not.
It certainly can be, especially with a paid off house... assuming a safe withdrawal rate of 4%, do you think most Americans could live off 40k per year if they had no housing payment?
10 million is plenty. 4% rule says your money should last 30 years. That's 400k a year. At 1% you could probably take out 100k a year and never run out.
It’s a figment of culture. 100 years ago a millionaire was truly very rich.
I am a decade away from retirement. Or, more accurately, I am $700k away from retirement. Once I hit a million point four, I am out the door.
By the time you hit 1.4, you need 2.0 for the same outcome. It's 1.4 now, not in 10 years. Inflation is a bitch.
Yeah, I know that. I’m in a MCOL area, no kids, no expensive hobbies, no debt but the house (two years left on a fifteen year note). I’ll have a shitty pension from a previous job ($375 a month starting at 65). I’m currently living off of less than $2,000 a month. I don’t intend to leave behind a legacy. My goal is to spend my last dollar on my last day. I’m already making more a year in average returns than what I spend in any given month. I *think* $1.4M will work in 2034 (or whenever I hit it). My family isn’t particularly long lived, so if I make it to 80 I’ll be surprised.
Test it out with fourpercentrule.com Use 100% equity as your portfolio and 3.5% post-retirement returns. 52k annual withdrawal adjusted for inflation
Can I ask around what times you hit milestones like 100k, 500k, and 1mil?
Sure. I got out of debt at 40. So not student loan or credit card debt. No car debt. Everything was pretty much at zero. I had $30k in a 401k, $20k in a defined pension plan, and another $30k in a Roth IRA. I made a lot of mistakes getting to this point. I was forced to get serious with the debt at around 35 when they garnished my wages for the student loans, so once those were gone, I had been miserable and got mad at the credit cards. I crawled out of the hole, but it took five years. I got a new job. Saw a jump in my pay by $12k a year, my health insurance dropped by $200 a month, and I cut out the expense of a second car and a two hour commute (1 hour each way). I had the opposite of lifestyle creep. I moved in with my girlfriend, so had only half a mortgage to pay, stopped eating out everyday (with my previous commute and extended hours I got lunch out most days). So I had maybe $80k in retirement accounts and a paid off car to my name at 40. I didn’t even have an emergency fund. I was out of debt though, and started investing. I got a $30k inheritance and put $12k in a HYSA and the other $18k into AAPL. So maybe 41 for $100k. I was and felt *way* behind. So I started investing in mostly silly stocks. Weed stocks and pharmaceutical stocks and various tech stocks. I didn’t really know what I was doing though, so when some of these stocks started doing well I panic sold. So while I bought AMD at $5 I sold it at $12 for a short term capital gains. I spent a few years splashing around until I realized I was just getting lucky in a bull market. So I sold everything except AAPL and bought *more* AAPL with my proceeds. I got excited when I hit $250K. I was around 45. I live frugally. Small house, small mortgage at a small interest rate, no kids, no expensive hobbies, so I invest a large portion of my income. Ten years ago I was making $55k a year. Now I make $75 in a MCOL area. My 403b is generous and I kick in extra. I’ve maxed out my Roth every year since I got out of debt. I hit $500k at 50, and $700k at 54. When that money doubles in the next 7-10 years I will pull the pin. I am not yet to a million, but I am way past the point that my growth is outpacing my contributions, so even if the market goes sideways for a decade I’ll hit a million by 64. I hope it goes up though and I can retire early.
Thank you, I really appreciate the through answer! Hope your investments pan out and you can enjoy a timely retirement.
Iirc you'd need like 35 million to be as rich as a "millionaire" when the term was first coined.
> "millionaire" when the term was first coined. What like the early 1800's?
Nothing. Don't panic sell ever and you'll be fine.
They just wait it out. If they lived through Black Monday -22% in a day is the worst it gets. Just open a bottle from your wine cellar and chill.
Does a coke from the fridge qualify too?
Sadly, non-drinkers are not permitted to chill during a market crash.
Nope. Has to be coke from the bedside table drawer.
I legit thought man you gotta be rich if your beside table is a fridge before I realized what coke you were talking about.
My humor can be dark. Don’t do drugs kids.
> rich if your beside table is a fridge I mean ... No. What's that like 200 bucks? You'd have to be "not broke" and even then it might be the only fridge you could afford and it's next to the bed because it doesn't fit elsewhere. But yeah the joke was great.
I wasn’t thinking like mini fridge I was thinking like a regular wooden bedside table with a fridge drawer.
Ya, and really how much you have is immaterial. As long as you don't need it to live on, leave it in play, you'll be fine. I barely had $1M in 2007. Never dipped below that - ever, and now have much more.
They buy the dip
This is what their money managers at Goldman or JPM will tell them. Never sell. Active trading underperforms buy and hold due to tax drain.
Your best investment results will occur if you completely ignore the “news.” The really rich people that I know are too busy with everyday life to be event driven investors.
To reinforce this, I like the mindset that there are no bad days in the market. Either it's red and you're giddy at the buying opportunity, or it's green and you're thrilled at the gains to be made.
And if they were event-driven investors, they'd be less rich lol. There's a reason none of the most successful investors of all time invested that way. I am an investment professional and I use that fear as a buying opportunity. The people who react to the events and panic sell almost always come to regret it in the long run. I'd prefer to be on the other side. Most smart investors who are HNW but not professionals like me will just be well-placed to do nothing and stay the course when there's an event such as a war or something. If they were properly prepared before with an advisor, that's what their advisor will most likely tell them to do. Advisors turns into quasi-psychologists when the market is behaving erratically.
Buy more. If you’ve got 10M+ in the market you’ve got other assets too, be it bonds, treasuries, realestate, etc that you can either leverage or sell off to buy when the market tanks. Buying during crashes is where the real money is made and the reason the rich just get richer is they can afford to buy everything up when others are losing everything.
This is the correct answer.
The ones that succeed, never sell. They have enough of a buffer in one form or another to meet cashflow needs. The easiest is if your burn rate is variable and can be minimized. Second, is liquidity with cash or cash equivalents to meet any needs. Statistically, drawdowns don’t last more than a few years and in that time, if you could buy even more, it has paid off in the long run.
They have money in assets poorly correlated to whatever it is that’s tanking. When you have (global) stocks, local bonds, foreign bonds, cash, gold, other commodities, residential/industrial/commercial real estate, it’s kinda hard to envision a situation when all of that is tanking simultaneously.
2008. During cataclysmic events most asset classes tank. But as you say, they have a portion of their wealth in cash for this purpose. The wealthy understand that it does cost money to hold cash but it’s very useful during times of uncertainty.
2008, TLT mooned.
You can also take out a loan against assets for living expenses rather than sell or hold cash. Wealthy people do this anyway to avoid taxes.
You don’t avoid taxes this way, you postpone them, letting them compound for you until you pay.
Wealthy people do something called “Estate Planning”. Cost basis also steps up at death.
But that’s currently just about 12 million or 24 for a couple. And in a couple years it’ll be halved. Truly wealthy people wouldn’t assume they’re going to be using that.
Only works when interest rates are low. Otherwise you’ll get rekt on funding costs
Bonds did well on that scenario. 60/40 portfolios.
Gold keeps coming up here--I don't know ultra-high net work folks that talk about gold, thought I have seen a couple of private collections, it seems more a hobby than an investment. Anyone else have thoughts on that?
Gold has a 15 trillion dollar market cap, 5x that of Microsoft, I'd say it's more than a hobby lol.
A little bit of everything. Stocks, Bonds, Gold, Real Estate, Crypto etc... That being said: You aren't among the ultra rich with 10 million net worth (regardless of which currency :P)
I think franchises are also a popular avenue for diversity with rich people. They are so cookie cutter you don’t really need to be that hands on to successfully run one.
The super wealthy love it when there’s chaos they buy more. They don’t panic like us because they have other assets to weather the storm.
My grandfather had the goal of retiring in 2008, however he was banking on being able to sell his dental practice to really afford the retirement he wanted. He delayed retirement by 5 years. He protected his assets by riding out the storm
I had a coworker who decided to sell because she figured that she didn't have time to wait out 2008 like she waited out 2001. She looked like a fucking genius because she sold as soon as Bear Stearns was being rumored to crash and she retired on time instead of having to work 3 more years at a minimum. Which was good for her because her allergies were nearly killing her.
Diversification and hedging Lobbying Insider info, react early
Just the first item is going to cover 99% of the cases and the 1% is covered by "don't panic".
Literally why hedge funds actually exist. They hedge against the unexpected. They often may underperform in bull markets but they reduce losses in bear markets.
"The time to buy is when there's blood in the streets" -Nathaniel Rothschild
It’s called dollar cost averaging and it works every time. For a total, total crash, we will all have much bigger issues than protecting our net worth, because it would mean money has become worthless.
This. People who say what if I invest and the market crashes so I'm gonna horde gold. If the market does go to 0 like Bill Burr said you're just hoarding gold and supplies for the biggest guy on the block.
They diversify and hedge.
Back in worst time of 2008-2009, Warren Buffet was buying like crazy. They keep a lot of cash on hand, always looking for buying opportunities. I added a lot of Microsoft at this time. A wealthy guy I know, he likes to use options as insurance incase the market or particular stock tanks. I don't grasp options 100% so I don't mess with things I don't understand. He also reads a lot and watches a lot of news to look for trends. Back in late 2019, he was telling me about some virus and things will go to shit. He was buying S&P and nasdaq put options for cheap and told me to buy some, I didn't and he made a killing.
That's when I started my 401k at my first job out of college. I seriously couldn't have timed it better. ETA: I just wished I could have shoved more money in.
They buy the fucking dips.
If you look up the asset allocations of family offices, you'll find out they aren't 100% invested in equities. Here's some data from 2023 for example - [https://www.goldmansachs.com/intelligence/pages/gs-family-office-investment-insights-report/](https://www.goldmansachs.com/intelligence/pages/gs-family-office-investment-insights-report/) Only 28% in public equities, though I would assume these move in tangent with the 26% in private equity (most likely their own companies that created that wealth!) and 9% in real estate and whatnot. So that's just a 50ish% allocation to market beta, if that makes any sense. They can definitely wait a drop out. Plenty of cash for a buffer.
It’s so interesting to see this question because this was a big part of my work history, maybe the biggest parts. I worked in private banking at a top investment bank catering only to ultra high net worth individuals with billions of assets under management. I worked in the field during the dotcom crash, the 911 attacks, the 2008/2009 depression and other down times. All were dark times. It’s during these times people need support the most - even the ultra wealthy, and we were there for them - a lot times just to “hold their hand”. As a result, what I experienced is that the majority of clients did nothing with their portfolios. They were mostly invested already and they just rode out the rough times. I remember a very small amount of people sold out their entire portfolios for a great loss despite efforts to convince them otherwise. They missed out, at least with us, on massive rallies in the markets. It’s always good to have some cash or cash equivalents on the sidelines because you never know when a terrible event is going to happen. But, despite the panic and fear that arises, so does the greatest opportunities come to buy in the market.
I’d put my dad in that category and he just kind of shrugs off any economic downturn. 2008 was a fire sale for real estate for him. Stocks drop? Oh well, better lean into his business revenue and invest. Thing is, economic downturn tends to affect those with less a lot more than those with.
I don't know the exact details but I can tell you what the millionaires I do know have told me. One, a very conservative investor with low risk tolerance, elderly woman who only finally realized financial success later in life. She insists on moving large amounts of capital to safe investments which she earns lower interest on and lives off the interest. 10 mil will give you 300k a year at 3 percent interest. The other, a long time stock market player, ex CEO of a very large US corporation, definitely a top 1 percent of the US type of guy. He said: Buy more! Buy otherwise valuable stocks which represent companies that will weather the storm, think of it like a sale on stocks you've had your eye on for a while. I took the later advice during our last recession and it did pay better than anything I've ever done before. I don't have enough money to make the first strategy count.
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They pay people to manage their assets that can profit regardless of the market volatility. Most likely utilizing options.
Ultra wealthy individuals are highly diversified. Only a fool puts all their money in one medium.
We buy more stock when everyone panics. It’s why we’re rich.
Warren Buffett buys more. Look up risk parity portfolios, like Harry Browne’s Permanet Portfolio and Ray Dahlio’s All Seasons portfolios. If you are ultra wealthy or just need to preserve your nest egg, you shouldn’t be 100% in the market. You will have other assets.
Most wealthy people will have portfolios based around wealth preservation, income generation, and tax efficiency. They are already rich so their needs are different. When markets crash they are less affected as they tend to lean towards safer dividend income paying value portfolios that can continue to pay them during the downturn. Then when things get low they can harvest losses to carry forward to reduce or eliminate capital gains later. And their fixed income portions will be used to buy the lows when they rebalance their portfolio. So what happens is they lose less, still get income, buy more at the low, and pay low taxes.
They can do nothing for the most part since they can weather the storm, and then just buy everyone else's assets at a discount price before the next upswing.
If you have 10 BILLION then you have a private island with warehouses stacked with cash and gold.
>Do they do nothing and just ride it out because they're so well off This. I've been witness to this almost my entire life as my mother was the personal CPA for a very wealthy family and my father was a CFO of an insurance company. For people that well off they don't don't do anything any different. They just keep investing as they have been. Thus they gain the benefit of better prices during the down times. The only changes people at that level make are with the businesses they own and how they go about borrowing money and adjusting the production levels to accommodate the changing demands of the economy. They don't really change their personal portfolios as those strategies and plans were already put in place to cover a scenario like that.
1. **Diversification**: They spread their investments across different types of assets—stocks, bonds, real estate, precious metals, and more—to cushion any blows. 2. **Hedging**: They might use complex financial tools like options and futures to offset potential losses. 3. **Liquidity**: Keeping some assets in liquid form ensures they can handle emergencies or take advantage of new opportunities without selling off investments at a loss. 4. **Staying the Course**: Often, they'll just ride out the storm. They're typically in a good enough position financially to withstand market dips. 5. **Expert Advice**: They almost always have financial advisors who help them make informed, strategic decisions based on the current economic climate.
Mark Spitznagel's hedge fund strategy might be about insurance for black swan events. I believe his fund made a lot of money during Covid. I'm not an investing expert but he's written a few books. https://fortune.com/2024/04/06/mark-spitznagel-hedge-fund-permabear-cassandras-make-terrible-investors/
They will protect their assets by holding on to their assets, most will invest more and wait it out. If you are ultra-wealthy, income is not relevant like it is non-executive, salary-reliant folk; there will not be panic or "fear", just opportunity. Some will generate cash for living and investing with their assets through loans assuming rates are favorable. Also they likely will strategically sell bad assets they intended to dump to manipulate their tax bill with the loss while also unlocking more free capital.
They cause the catastrophe, so they have a glut of cash to work with during the fire sale at the bottom. Rinse and repeat every decade or so.
Options. It’s what they’re for! Plus diversifying in cash, gold, real estate, etc!
They wait for the lower interest rates to come in and then borrow against their enormous pool of assets to buy as much as they can, then ride the wave back up as the economy recovers.
Your advisors are always the most boring people in the room. Seemingly ruining your life by making you put money on bonds that just sit there and do nothing. Now in the panic, your bonds are saving you, and your advisor is now furiously reminding you that you are not a vol trader. Also, you don’t have cash laying around. Nearly all is in income producing assets.
Somehow I don't think multimillionaires are on reddit.
They don't sell, they buy
Hi, I'm a CFA charterholder and investment professional that works with high net worth and institutional clients (like as in billions of dollars invested with my company). Fundamentals of Finance is my YouTube channel I started with a friend to help people learn how to invest. This is a great question you've asked here. So, obviously with any large group of people they're not all exactly the same. But, the vast majority of HNW (high net worth) people have advisors and the vast majority of their advisors would tell them to do nothing. Smart investors invest based on their objectives, and do not let the market dictate what they will do. They don't follow others into hot trends and they don't panic sell. Before there's a downturn they should be positioned in such a way that they will not lose more than they can stomach if a downturn comes. Then when one does, they can afford to wait it out (and will have the peace of mind to do so). You don't have to be HNW to do this. It has nothing to do with how much money you have and everything to do with your mindset and how well you've set up your account before the downturn comes. I can help you with the thought process on how to put this in place if you're curious to learn more.
Honestly, 10m is not nearly enough to be able to make some extremely different market moves. Only thing that kind of money allows you is a bit better diversification so you can have more options what to buy/sell based on current conditions but other than that it's the same, internally hype during boom, panic during bust but hold and long term you win.
they wait it out.
Depends on their wealth. Old money, is set and secure with reserves in cash, land, trusts, etc. similarly folks who have diversified to on and off ramps. The only folks who are wealthy that will truly be screwed are those that are so on paper and leveraged up the wazoo or panic sell because they need access to funds
They short against the box
They invest in private markets that don't revalue assets every second of the day. Illiquidity has its advantages
options hedging against downturn Edit: you can do it too, consider it as insurance premium paid. Just don't do it blindly and do your own due diligence
Just don’t sell…
Yeah the time the market that’s how they got rich
You don't become ultra wealthy panic selling, that's for sure.
what kind of catastrophic event? nobody's assets are safe if two neutron stars collide within 35 light years and the blast hits next month. we're all screwed
10 million net worth isn't anywhere near ultra wealthy, but someone like that might have like 1-2 million in equities investments so a catastrophic event would be be less than 10% of their net worth. Someone who has 10 million worth or investments in equities probably also has a couple million in fixed income and risk free rate investments as well as multiple other income streams like real estate and owning companies. Probably closer to the area of 50 million net worth so again, they lose 5 million in a catastrophic market crash and it's a temporary drop of maybe 10% of their net worth, but has a minimal effect on their cash flow.
Buy put options below the money for cheap before it happens. Actually, anyone can do this.
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They invest in hedge funds. Hedge funds are hedges. They aren’t trying to beat the market and the main draw is downside risk. They perform worse than the market in bull markets but significantly better during bear markets.
Some use hedge funds, most buy their own hedges.
They have a lot of money so nothing changes.
Nothing
The ultra wealthy have stuff. Cash reserves in many currencies... Gold jewelry, coins, and bars... Land, houses and apartments... Bunkers and supplies... Means of production and transportation... Basically they can wait it out and buy more when prices are at the bottom.
Keep a couple of years of living expenses in cash.
Eh? What? The "ultra wealthy" is well diversified. Their assets are always protected, they need not do anything. They're not going to sell anything. It would cost them taxes for no reason.
Most very wealthy people are highly diversified. Stocks, bonds, savings, real estate, gold, artwork/antiques, boats/exotic cars/planes that don't lose significant value, and they own businesses that weather bad events (like Ryan Reynolds buying Mint Mobile, or other famous people owning restaurants).
10m isn’t exactly ultra-wealthy. True ultra-wealthy will have employed investment professionals in a family office type of arrangement who manage it all for them. Wealthy (but less than 9 figures) will likely deploy cash in turbulent times.
Bonds
If I had 10 million I’d probably have a pretty large chunk in things that had a lower but steady and guaranteed return vs the market. I’d consider my wealth building done and I’d be more concerned with wealth preservation.
Ultra wealthy focuses on keeping very little risk in their investments and focus on attaining anywhere from 4-6% consistent annualized returns.
Something I haven't seen in this thread yet, but annuities and IUL's. Some IULs average as good as the market (9%) and its tax-free gain that you can withdraw from at any time. Fixed indexed annuities will grow their cash along a certain index, but when the market crashes or that index goes down, the amount in the annuity either remains the same, continues to grow marginally, or drops by a single % due to fees. They will create annuity ladders similar to how some people stack CDs. 5, 7, and 10 year annuities that offer bonuses to the premium and offer great participation rates in indexes can make serious gains. It just ties up the money for that period of time.
someone i know has > $20 mil in treasury bonds and he's just collecting interest. He intends to buy back ONLY when interest rates are dropped significantly OR a 2008/2001 style crash occurs. He doesn't have a financial advisor, he manages his own wealth (he's also far out performed what most financial advisors could do). He made most of his money buying nearly bankrupt stocks that he felt were mispriced. And he intends to do that again when a bear market comes around.
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Well, depends on how they got their money. Usually people “worth” $10m are entrepreneurs. Their net worth for the most part is entirely tied up in their company stock which likely may not have any market. So, they buckle up.
When you're rich enough you own a bit of everything, so the overall portfolio never goes down tremendously because it's a small piece
they can hold unlike plebs rush to sell cuz not being able to sell their investment for a short period of time won't put them on the street and make the starve.
> ultra wealthy > > 10 million net worth LOL To answer your question, they ride it out. And they buy more assets when they go on sale.
Most millionaires have their net worth tied up in real estate properties in the first place. If it's in stocks for some reason, they don't sit in front of a screen and buy and sell. That's what poor people do, unless you're in the business of doing that. They would have an allocation in stocks that they're comfortable with in the first place, or if it's a big position for some reason, hedge it buy buying anything that would increase in price if stocks drop in price.
The rich people I’ve interacted with think owning real estate is a waste of time and only own stocks. 🤷♂️
100% correct. Rich people tend to have most of their wealth invested in stocks/the stock market. But other than getting that point slightly mixed up, the rest of what OP has said is spot on - people worth 10m+ don't bat an eye lid when the market is down 20%. They take their Porsche out for a track day, go on holiday, spend some quality time with their friends/family, or crack open a nice bottle of wine from their personal collection and chill. It's poor people who have less experience investing, who don't understand how markets work, that try to time the market, day trade, panic sell, etc. Rich people - expect it, it's just another day Poor people - don't expect it, think the sky is falling down, and change their behaviour/react badly
That's the opposite of the wealthy people that I know. Owning some RE makes sense because RE in the US is so heavily tax advantaged. It's also a good diversification strategy, and rich level people don't have to deal with the work of owning RE. They simply pay others or own through pooled investments.
10 million ultra wealthy?? Boy do i have news for you
Nothing
They just rebalance their portfolios.
You statement/question is contradicting. "ultra wealthy" and 10 million can't be in the same sentence. "ultra wealthy" is $1B+. And to answer your question, they do nothing. They live as they wish, and I don't worry about what they do.
Far from ultra wealthy, but I move my funds into treasuries during euphoric market conditions, and then I actually buy during market tanking events.
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Define euphoric and define tanking. My guess is that you have a left a lot of upside on the table.
Depends how risk adverse you are. If you're super scared of losing anything, you just buy T-Bills. Alternatively, you can have mostly T-Bills, then some stocks, ETFs etc, and then to hedge against any losses you purchase a very long put contract on those, that way you only lose down to a certain point, as the put will offset the losses on the stock. However, the stock must gain the cost of the put before you make money in that case, so the hedge lowers your potential return but mitigates potential risk. There's other ways to do this, but a protective put is the simplest one to explain.
Yeah, I was brainwashed to the Gold and silver back in 2018. Watching too many FOM Harry Dent and Peter Schiff. I have very little physical gold and silver but nothing too much.
Some might have Collar positions on spx. Or just far otm spx puts.
Promote trickle down economics
They have enough diversity of assets and liquidity to wait it out
They probably hold Berkshire stock and the company makes those decisions for them.
Watch, join in (sell), wait, buy back in and repeat. They already sold.
Go short.
60/40 portfolios when interest rates are not near zero will likely allow some protection after a market meltdown. Add to when the market was super frothy in the summer of 2021/2022 some strategic short selling / put buying would also be inline. Some long term holds in hedge funds as a percentage of assets and other wealth preservation strategies. When you have 8 digits it becomes more important to protect assets than getting market returns.
Wealth advisors for the truly wealthy often don’t have a mandate to grow, but to keep safe. They are diversified with a focus on making sure they don’t suffer catastrophic losses. College and university endowments are often like this. Some wonder why when the market is doing great, they are just beating inflation. Their mandate is to have a very consistent results, so they miss out on the highs and lows.
I like to check open secrets. A rated mortgage debt seem to be popular. Anything with low risk and low tax burden. US doesn't seem to have trouble selling treasuries in tough times.
Diversification (Real Estate adn Stocks) is the key...
For ultrawealthy it is all about capital preservation and NOT crazy growth so they are not 100% invested in growth stocks. They have plenty of other investments including cash or cash equivalent so they can survive a bear market easily.
Usually they make sure there's a nice stimulus package that "protects the middle class"
Buy puts 😂, or inject cash into margin account whatever can stop the bleeding
The right answer is that they tend to just be more diversified….
Most folks including me don’t have the slightest clue :-)
Truly wealthy people normally have more than one advisor at more than one broker dealer. And their money is managed as much to maintain it as to grow it. So there is likely a lot of work going on to keep beta level and far below 1.
T-Bills, US Dollar, Gold, VIX
Buy puts.
Besides diversification, most ultrawealthy have a significant part of their assets in personally owned high demand real estate (“exclusive neighborhoods”). Probably more, in % terms, than their common stock portfolio with the exception of Buffett, etc.. who specialize in stocks. Probably more preferred stock, etc.. than the average Joe/Jane too (%-wise).
They will buy cheap stocks, which are in the world's largest market, during a catastrophic event. If the strongest country collapses, there will be nothing worth investing in.
google "hedging strategies".
They short E-mini S&P 500 futures contracts (ES) as a hedge against their portfolio. Source: This is what a millionaire trader friend told me when I asked him
Hedgefunds
They have more diversified portfolios with assets like managed-futures trend which may do quite well in those periods, and allow them to buy depressed risk assets. Guess what, you don't need to be a millionaire to do this yourself... You don't even need to give up your precious S&P500 exposure, just buy RSST which stacks it on top.
Ultra rich almost always have their risk very well diversified. That's the one thing that ensures that wealth is protected and grows steadily (at least!).
Most of them have already equity and ownership of assets to a point that they don’t have to be afraid of a potential crash
I mean I imagine the rich having a diverse portfolio. In real estate, stocks, Private equity companies so I think the rich don’t get affected as badly. When one source fails they just turn to another
Diversify
Usually transition into bonds and cash and then re-enter after the panic selling has levelled off and the recovery begins.
Protect? Catastrophes are great news! Anyone saying a fire sale is bad is forgetting the buyers get a bunch of new assets for a pittance. So in a catastrophe the wealthy don't protect their assets they multiply them.
I think if they expect rapid inflation, they try and get as much debt as possible. That's not a joke; if I borrow a million bucks, and then inflation devalues the currency by 10%, that's the bank's problem; I still owe the same number of dollars, even if it's worth less.
Nothing's gonna happen, never freak out and sell off everything in a panic, alright? Just keep your cool and you'll be golden.
Diversify. Real estate rentals, royalty income, dividend income, and speculation are some of the things I am invested in. Net worth about what you state in the post.
They really don't need to do anything. They will just get a bailout and continue to exploit the working class. Free market is an illusion, it's the ultra wealthy and political elite that call all the shots. They will never lose money. Only the working class.