Young Millionaires

Derek Notman |

How young (under 40) millionaires & billionaires invest their money and what they expect from a wealth management firm.

(Hint: it’s probably not what you think….)

Achieving millionaire, or even billionaire status, is something many of us have dreamed about.  Although there are a multitude of ways to achieve the millionaire or billionaire status, more and more people are getting there through the entrepreneurial journey of building, scaling, and exiting a startup business.

We hear about a variety of people in the media who invented X, built ABC Company, etc.  Their stories usually well documented by said media and through autobiographies.  What is not so talked about is how they invest their money once they have achieved this new high net worth status.

Whether you are just getting started or have already achieved millionaire or billionaire status, we can all learn from what these smart and successful people are doing with their money.


Who Are High Net Worth Individuals (HNWI's)?

What makes someone a HNWI?  According to the Capgemini World Weath Report, they define HNWI's as those with investable assets of $1 million or more, excluding primary residence, collectible, consumables, and consumer durables.

The growth of this particular segment has been robust to say the least, more than doubling in the last 8 years.  In 2016 the US HNWI population grew at 7.8%, to 5.2 million people, compared to 2.0% in 2015. 

This ever growing population of younger HNWI’s is driving how wealth managers interact with and cater to the needs of these people.  They are not investing like their parents and grandparents did.  They have different needs and perspectives on how they should interact with their money, especially for those that made their money through risky ventures like starting a company, investing in real estate, or playing the markets.


Behaviors of Younger Millionaires & Billionaires

It is interesting to see the divergence of the younger HNWI’s from their predecessors, they have steadily increased their ranks and thus now are able to demand more from their wealth managers then their parents & grandparents did.  Younger HNWI’s are also exhibiting lower trust & confidence in both their wealth managers and firms they represent.

A lot of advisors may see this as a threat to how they do business.  Me, I think it is a breath of fresh air!  Wealth Management (financial planning) is a service industry, thus it should be laser focused on what the consumer is asking for.  Adapting with new technologies, ways of conducting meetings, and being specialized are some of the ways wealth managers can differentiate themselves to provide the ‘experience’ that younger HNWI’s want, and frankly deserve.

Younger millionaires & billionaires are demanding more sophisticated financial planning services, including a preference for a robust digital experience.  They are looking for wealth managers that truly have an understanding of what their needs are, with a higher propensity to leave that wealth manager for a new relationship if they didn’t.

Younger millionaires & billionaires are expecting more specific wealth management needs that is setting them apart from their older counterparts.  They see their financial situations and investments as more complex and global in scope.  Thus they are looking for wealth managers who look at things on a global scale while also engaging the expertise of other experts to give them more customized solutions for their financial needs.

While wanting more comprehensive and customized solutions younger HNWI’s are also looking for lower cost, digital experiences.  Combining robust financial planning teams with the leverage of outsourcing automated investing services is the model they are tracking towards.

Interesting to note that younger millionaires & billionaires are most concerned with:

  • Rising education costs

  • Ensuring their children’s well-being should something happen to them

  • The availability of higher education

  • Access to credit availability

Also interesting to note are the differences between younger and older millionaires, their is definitely a shift in progress.


How Do Young Millionaires & Billionaires Invest Their Money?

They do the opposite of what they used to do.

Most HNWI’s created their wealth by taking calculated risks, which eventually paid off.  I have noticed that once wealth has been achieved, these same risk takers are now actually a bit risk averse.  This may at first glance surprise you because entrepreneurs are known as risk takers. 

Once they have a lot more money in the bank they tend to look at taking risks differently.  They know what it took to achieve the success they now enjoy.  Their perspective and appetite for risk changes.

Although each person’s situation is different, here are some common places I have seen young HNWI’s invest their money:

  • Cash.  Yup, I said cash.  Although they aren’t making much on this money, it is safe and liquid, giving them peace of mind and also the option to invest in a new opportunities.
  • Tax efficient investments.  Ever heard the saying, “More money, more problems”?  Just because you have more money doesn’t mean your problems go away, they just change and sometimes get bigger, like taxes.  Investing in things like municipal bonds, cash-value life insurance, real estate, and Roth IRA’s can help make for a more tax efficient investment portfolio.
  • Startups.  For those entrepreneurs that made their money by starting, scaling, and eventually selling their business know just how hard that journey is.  They tend to set aside some money to invest in private placements of startups that they would like to support, both from a financial and strategic basis.
  • Real Estate.  Although not as popular as other options, there are certainly benefits from investing in real estate like depreciation & cash flow.
  • Alternative Investments.  Lots of younger HNWIs are actually somewhat opposed to straight up investing in US equities (stocks).  Thus the appeal of alternative investments like commodities, hedge funds, derivatives and foreign currency.


How to Become a Millionaire or Billionaire?

There are virtually endless ways to become wealthy.  Start a business.  Build an app.  Invest like Warren Buffet.  Inherit money.  Win the lottery.  Etc.

The common thread?

Regardless of how someone created their wealth, I have noticed the ones that keep it eventually leveraged the power of a financial plan to pull their entire financial life together, working with multiple advisors, to ensure they manage their wealth in a way that lets them enjoy life, pursue their passions, give back to society, and take care of those important to them. 

The ones that did this sooner were more prepared & better positioned for the transition to being wealthy.  The best part of this financial planning process?  If done correctly it actually has nothing to do with financial planning, at first.  It starts with the fun stuff; your hopes, dreams & goals!  The financial plan is simply the roadmap to help you realize them.

Are you a millionaire?

My firm, Intrepid Wealth Partners, was built for people like you. 

It is my passion to help people enjoy all life has to offer through the work we do.  An entrepreneur myself, I built my firm to help millionaire entrepreneurs build highly customized financial, investment, and insurance plans to realize their hopes, dreams & goals.

Thank you for reading this post, I hope it gave you some insights on how young millionaires & billionaires invest their money and inspired you to take your wealth by the horns so it will last the rest of your lifetime, or perhaps several.

Best Regards,

Derek Notman