What do rich people invest in?

ParsnipsRhubarbCelery · #1 (**permalink**) 06-04-2008, 09:30 PM

I've always wondered about the following question:
What do *really* rich people invest in?

For example, if an actor (I love reading/learning about famous hollywood actors and actresses) makes ten million dollars a movie, and they make a whole bunch of movies, what do they do with all the money? Do they buy lots and lots of CD's at banks all over town? Or, do they put it all in a money market fund? A checking account? I'm wondering.

tripods68 · #2 (**permalink**) 06-04-2008, 09:54 PM

High earners tend to put majority of their $$ on "munis" tax exempt bonds because of AMT issues. Mr. Billionaire Mark Cuban said one point, "majority of $$ (around 2-3 billion) are in "munis" tax exempt.

jIM_Ohio · #3 (**permalink**) 06-05-2008, 01:01 AM

High earners have more choices.

They could finance real estate endeavors. They could purchase multiple chains of a restaurant. They could do many things the rest of us only dream of.

Three reasons
1) with an initial investment of $5-10 million, this is a small fraction of their net worth, where as to you and me, this is all of our net worth
2) the return expected might be small (5-6%), but 5-6% of $5 million invested nets a higher amount than $1 million at 10%.
3) the investor is still in equities, these other investments diversify their risk and help their overall return.

See Magic Johnson or Donald Trump as good examples.

LuxLiving · #4 (**permalink**) 06-05-2008, 07:01 AM

Rich folks buy assets. Things that pay them money w/little to no additional labor involved. Ex. munis listed above.

Poor folks buy stuff. Things that they pay to upkeep or store.

rob62521 · #5 (**permalink**) 06-05-2008, 07:34 AM

Well, one well-known celebrity must have subscribed to the buying of stuff -- Ed McMahon's house is in foreclosure according to one of those tv magazine shows. Said since he broke his neck last year and couldn't work, he couldn't keep up with the payments.

JBinKC · #6 (**permalink**) 06-05-2008, 07:36 AM

They have so many advantages. They pay a much lower percentage of their income to taxes

Many of them put their money in munis, invest in hedge funds (which beat the returns of mutual funds by a large margin) or buy stocks directly for long term gain intentions. They can buy real estate that is so desirable that it is insulated from price depreciation and they can write off just about any expense known to mankind through a business while the average guy can't.

Its also funny how they can circumvent the law and get away with it.

Reldon · #7 (**permalink**) 06-05-2008, 07:38 AM

Suze Orman, on her show last week, said she put most of her money in municipal bonds. She says she had some money in the stock market but its money she's not worried about.

jIM_Ohio · #8 (**permalink**) 06-05-2008, 10:33 AM

Quote:

Originally Posted by JBinKC

They have so many advantages. They pay a much lower percentage of their income to taxes

Many of them put their money in munis, invest in hedge funds (which beat the returns of mutual funds by a large margin) or buy stocks directly for long term gain intentions. They can buy real estate that is so desirable that it is insulated from price depreciation and they can write off just about any expense known to mankind through a business while the average guy can't.

Its also funny how they can circumvent the law and get away with it.

Careful- what you see as circumvention another might see as creating a better opportunity for themself or someone else. Small businesses can hire a person or two, but they might need an incentive to do it.

I had an interview earlier this week where the company was small and they did things a little different than most.

Same job I have now, but 100% travel for close to a 100% raise. In addition expenses are covered by employer.

If assignment is long term, they give a housing allowance for the assignment (say $108/night for 3 years). Do the math- that allowance is $28000/year. If I were to get a corporate apartment, it would cost less than that. I could probably get a condo (buy it) for less than that annually too.

Then I could get a car (allowance of $25/day) which is $6500/year. I could lease a car for that, or buy one.

Then at end of assignment I would have a condo to sell and a car to sell which would make me more money than just that salary.

To you that might look like circumventing a law, to me that is just good business sense.

JBinKC · #9 (**permalink**) 06-05-2008, 11:29 AM

What is going to happen??? A bunch of rich people are going to conspire to kill me for saying they have more opportunity to circumvent paying taxes (some legal and some not).

Average people have the some opportunities for avoidance albeit they have fewer options.

jIM_Ohio · #10 (**permalink**) 06-05-2008, 12:31 PM

Quote:

Originally Posted by JBinKC

What is going to happen??? A bunch of rich people are going to conspire to kill me for saying they have more opportunity to circumvent paying taxes (some legal and some not).

Average people have the some opportunities for avoidance albeit they have fewer options.

My point was if the rich were not taking advantage of the breaks, it's possible some of that money would never be spent.

Instead of buying the condo in my example I could go to a hotel. Which is better for the local economy- buying the condo, IMO.

Instead of buying the car in my example I could rent a car. it is better for the local economy for me to buy.

Comments like the rich get all the breaks are weak. It is a micro/ personal economic view of a problem. Look at the macro economic (big picture view). Would you rather the money get spent and go to some corporation out of Delaware, or put back into the local economy which creates jobs for some and tax benefits for others?

sweeps · #11 (**permalink**) 06-05-2008, 12:48 PM

Many rich people just have all their money in bonds. They don't want to mess with anything fancy.

Also many have much of their wealth tied up in a closely-held or family business.

tripods68 · #12 (**permalink**) 06-05-2008, 01:33 PM

Jblink you make some good point.

Quote:

Originally Posted by jIM_Ohio

Instead of buying the condo in my example I could go to a hotel. Which is better for the local economy- buying the condo, IMO.?

How is spending a night to a hotel would serve "better for the local economy". A person pay $60 a night hotel room and leaves the next day. Any profit earns goes to corporate HQ outside the state anyway. On the other hand, owning a condo is a permanent fix; owner pay city/county property tax which fund local gov't coffers; home requires home maintenance services which serves local lanscaping or subcontractors like plummers; owner also must buy foods which serve local grocery and retail stores.

I would also add, rich people have far more resources at their disposal to take advantage of loopholes built within tax codes. Where rich people deals in millions of tax savings every year, whereas middle class earners often deals with hundreds or few thousands dollars tax savings. When most middle class earners deals with 1099 and schedule C less complex taxation, rich people deals with highly complex taxation code in a global scale. Especially if you add rich people that gives millions in charity, funding their own fundation, etc...

LuxLiving · #13 (**permalink**) 06-05-2008, 01:45 PM

Right - profit might go to HQ, but they hire local people, pay local landscapers, pay local & state taxes. I fail to see any huge difference as to whom the money is paid, but in retaining some residual benefit for yourself long-term from how you spend (invest) the money.

tripods68 · #14 (**permalink**) 06-05-2008, 01:59 PM

Sure not without saying hotel chains; but who usually own those hotels that aren't public company. Invidividual rich folks!

disneysteve · #15 (**permalink**) 06-05-2008, 02:17 PM

Rich folks also "invest" in tangible items that you and I can't afford: famous paintings costing millions of dollars, vintage automobiles costing hundreds of thousands, antique bottles of wine costing thousands of dollars. That type of stuff. They can also own things like pro sports teams, newspapers, radio stations, whole companies, etc.

asmom · #16 (**permalink**) 06-06-2008, 06:43 AM

It depends on who the rich people are. Some of them can be real dummies and "invest" in items like jewelry, cars, and shoes. They also do not know how to say NO and they end up giving their money away or investing in various shady friends and family. They often don't pay their taxes or they do not spend the money on a financial advisor who can steer them towards tax-savvy vehicles. The most high profile of these losers are professional athletes, entertainers, and lottery winners although common folk can fall victim to this also. These formerly rich people usually end up in bankruptcy, losing their homes and vehicles to auction, etc. You can learn just as much from the rich about how NOT to invest your money as you can learn how to invest your money.

poundwise · #17 (**permalink**) 06-06-2008, 07:27 AM

They also buy a lot of mustard.

tripods68 · #18 (**permalink**) 06-06-2008, 08:13 AM

I haven't seen that old commercial since I was i HS...funny stuff

Broken Arrow · #19 (**permalink**) 06-06-2008, 10:36 PM

Quote:

Originally Posted by disneysteve

Rich folks also "invest" in tangible items that you and I can't afford: famous paintings costing millions of dollars, vintage automobiles costing hundreds of thousands, antique bottles of wine costing thousands of dollars. That type of stuff. They can also own things like pro sports teams, newspapers, radio stations, whole companies, etc.

You mentioned what I was going to say. It's interesting how some diversify their holdings. To add, I think the Johnson family owns Fidelity. What better way to manage your money than to own one of the biggest names in investing.

Quote:

Originally Posted by poundwise

They also buy a lot of mustard.

U WIN TEH THREAD!