Tom Nash
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"What the Top 1% Know About Investing (That Most Investors Don’t)"
🕑 Added 2025-01-18 16:05:23 +0000 UTCEver wondered why some folks become millionaires while most of americans are living pay check to pay check?
Sit back, grab a snack, and let us take a little journey together through the minds and portfolios of the wealthy. We will explore how they invest, what they value, and how these strategies can guide you toward financial success.
First, let us bust a big myth: most millionaires are not that rare. The idea that everyone with a million in the bank either won the lottery or inherited a fortune is seriously overblown, especially in America.
As of 2023, the United States is home to approximately 22 million millionaires, accounting for about 8.8% of the U.S. adult population.
The reality is that many millionaires simply practice systematic saving and investing. That might not be as exciting as signing a major league sports contract, but it is way more common. We all love reading a thrilling story about a teenager who launched a startup that sold for billions, but the data tells us that there are plenty of people quietly amassing wealth by following time tested principles.
A classic way to think about these wealthy individuals is found in the popular concept of PAWs and UAWs.
PAW stands for Prodigious Accumulator of Wealth. That means you save more than the average person your age, and you invest regularly.
UAW stands for Under Accumulator of Wealth. That typically describes high spenders who never seem to get ahead, no matter how big their paychecks grow.
Being a PAW is not about having fancy credentials or being born with a trust fund. Instead, it is about having the discipline to live below your means, saving your surplus, and investing that difference wisely.
The interesting part that many folks miss is that you are not a guaranteed millionaire just by saving money. Yes, you do need to store away some of your income, but the real long game is about what you do with those savings.
It is about growing your money in the right place. The wealthy rely on investments that grow consistently over time. They use the power of compounding, and they avoid the trap of excessive spending.
When you begin to follow these patterns, you see that the difference between those who are financially comfortable and those who are financially strained is a matter of daily habits and smart decisions.
It is like building a house brick by brick.
But that is just the start. Let us talk about the real fun: the actual investment decisions of the wealthy.
In the United States, the top 1% owns more stocks than the rest of the country combined. Some stats show that over half of all American equities are in the hands of that top bracket. There is a reason so much of their net worth sits in stocks.
Historically, and I mean going back a good 100 years or more, the stock market has outperformed almost every other asset class, including real estate. That does not mean you should never buy a home, but it helps explain why the wealthy lean heavily toward equities.
Of course, real estate has its place. It can offer stability, a sense of pride in ownership, and sometimes even a nice profit. But over the very long run, real estate returns tend to hover only slightly above inflation. Compare that to stocks, which have handed out inflation adjusted returns at a rate that dwarfs real estate.
That gap is massive. People underestimate what a difference a few percentage points can make over a 30 or 40 year timeline. A tiny extra percentage of growth each year can stack up to a huge difference in total wealth.
Big firms like Vanguard, Bank of America, and KKR have done deep dives into where affluent investors put their cash. One Vanguard study looked at over 800,000 retail investors, each with an account balance around or over 500,000 dollars, with a median of about 1 million. These are called affluent investors for the purpose of the study.
Then KKR took a look at ultra high net worth individuals, or those with more than 30 million in assets. Comparing these two groups is fascinating. They invest differently, but there are plenty of lessons for the rest of us.
Let us start with the affluent (+$500,000 balance)
Most of them have a strong focus on equities, with a typical breakdown around 64 percent stocks, 23 percent bonds, and 13 percent in cash or cash equivalents. They also have something called a long term risk orientation, which is a fancy way of saying they do not jump in and out of the market like caffeine crazed day traders.
They hold onto their stocks through the ups and downs.
Here is another nugget: affluent investors often display a home bias. That means even though the U.S. market makes up about half of the global stock market, American investors tend to have as much as 80 to 85 percent of their portfolio in U.S. stocks.
Affluent investors also do not panic sell. This is crucial. Even during market meltdowns like the one early in 2020, when pandemic fears clobbered global markets, only a tiny percentage of these investors completely ditched equities. That is a testament to having an emergency fund so you are not forced to liquidate at the worst possible time. The wealthy and affluent often have enough cash on the sidelines or stable enough income that they can ride out huge market dips without panicking. Whenever a giant selloff happens, the folks who hold steady historically end up better off when the market recovers.
On the flip side, let us peek at the ultra high net worth crowd. These folks often have at least 30 million dollars in investable assets. Their allocation looks very different. They have a smaller percentage in equities, maybe around 30 percent, while a large chunk sits in alternative investments like private equity, hedge funds, and maybe even art or real estate properties.
They also keep about 15 percent in bonds and around 10 percent in cash. Why do they do this? One reason is capital preservation. When you have 100 million or a billion dollars, you are not necessarily trying to triple it. You are trying to keep it from shrinking by too much in a market downturn. Lower volatility might sound boring if you are in your twenties, but if you have more money than you can ever spend, your main goal often becomes to maintain that fortune and pass it on to future generations.
That is also why the super wealthy turn to hedge funds or private equity. It is not always about beating the market. In fact, many hedge funds do not outperform the market, but they can smooth out the ride so that returns are not so rollercoaster like. It also feeds a bit into exclusivity.
Let us be honest, some of these funds are closed to the public, require massive capital to enter, and that mystique makes them more appealing. Whether or not that is always rational is another story. But it is the reality of how many ultra wealthy handle things: a desire for stable returns, unique opportunities, and sometimes a dash of wanting something special that is not available to everyone else.
So, what can we learn from these behaviors?
Well, we are probably not in the market for multi million dollar private equity deals. But we can borrow some of the strategies that make sense for everyday folks. First, overweight equities if you have a long investing horizon and the stomach for volatility. Equities have historically delivered the best returns over long spans.
Second, keep a cool head during market turmoil. When the market is dropping and you are freaking out, that is usually the worst moment to sell. Third, stay diversified. Even if you love a particular tech stock or sector, do not go all in. Spread your bets across different companies and industries.
On the flip side, do not mimic every move the wealthy make. For instance, ultra high net worth investors might be more comfortable tying up large chunks of their wealth in illiquid assets like hedge funds or private equity. That can be a poor choice for smaller portfolios where you need flexibility and more immediate access to your funds. Also, be cautious about paying high fees. Some active funds and certain alternative investments can be very expensive to own.
If you are an everyday investor, a good place to start is often a broad market index fund or even a target date fund that will automatically adjust its risk level as you age.
But all this talk about portfolio composition misses a key factor. To invest a decent amount, you have to first have that money.
If you are brand new in your career or you have student debt. If you are only able to invest 100 dollars a month, a strategy difference of 2 or 3 percentage points in return will not dramatically change your net worth in a year. Where compounding becomes magical is once you reach a certain threshold where the returns themselves are generating meaningful amounts of money. That means your first priority should be creating a strong gap between your income and your expenses. Increase your earnings, decrease your unnecessary spending, or ideally both.
Then funnel that difference into investments month after month.
Now, let us get really concrete. How do I decide where to put my money? Let us look at a simple blueprint that is often called the ladder of personal finance. First, if your employer offers a 401k match, grab it. When a company says it will match 100 percent of your contribution up to 5 percent of your salary, that is free money. Contribute enough to get every dollar of that match.
Second, if you have high interest debt, such as credit card balances charging 20 percent interest, tackle that. It is hard to get ahead when your debts are racking up at a rate that dwarfs what you would earn on most investments.
Third, open an IRA, often a Roth IRA if you qualify. This is your personal retirement account, separate from your workplace plan. You get great tax benefits, and you can hold all sorts of investments inside it.
Fourth, if you still have money to spare, go back to your 401k and max it out. There are contribution limits that change each year, but for many people, that is a chance to sock away a big chunk of money in a tax advantaged account.
Fifth, if you have access to a Health Savings Account, that is another place that can do triple duty as an investment account with certain tax advantages.
Finally, if you have more to invest after all that, open a regular taxable brokerage account and invest there.
But let's be real. The best investment strategy is useless if you never have clarity on your goals. That is why it helps to figure out what you want your money to do for you. We often call that the big number or your financial independence figure. Some people want to maintain their exact lifestyle in retirement. Others want to spend more or maybe retire early.
One well known guideline is the 4 percent rule. That means if you have 1 million dollars invested, you could safely withdraw around 40,000 dollars a year. Sure, that is an approximation. There are factors like inflation, changes in market returns, and personal spending adjustments. But it is a helpful way to set a ballpark goal. If you want to spend 80,000 dollars a year, you might aim for 2 million. And so forth.
If those figures sound huge, remember that you have time on your side and that investing consistently can snowball fast once compound interest kicks in. It might take 10 or 20 years, but the earlier you start, the easier it becomes.
Waiting around for a perfect time to invest is usually a trap. If you try to time the market, you risk missing out on the biggest up days, which often drive a large portion of total long term returns. So don't wait for the next crash or guess that you can buy low at the perfect moment. Consistency beats market timing almost every time.
Also, don't forget to plan for emergencies. The wealthy can afford to keep a chunk of cash parked in a savings account or short term bonds so that they never have to raid their investments if something goes wrong in the market or in their personal lives. You need the same approach, scaled to our situations. Typically, you want at least three to six months of living expenses safely stashed away. This helps you sleep at night and stay the course with your investments.
Speaking of your personal development, another tip is that the wealthy spend time and sometimes significant money on improving their skill sets or building businesses. Wealth can free you to sharpen your talents or pivot in your career. If your ambition is to move up in your field, consider whether a graduate program or specialized training might have a big return on investment. Or perhaps you want to start a side hustle, get that off the ground, and eventually turn it into a full time enterprise. That is an investment of your energy, not just your money, but it can be a game changer.
We should also touch on the difference between being rich and feeling rich.
A lot of high income people spend everything they earn. The result is that they might have flashy cars and big houses, but their net worth might be surprisingly modest, or even negative if they took on too much debt. This is why many seemingly middle class folks who quietly invest end up wealthier in the end. Earning 200,000 dollars a year is not really impressive if you are spending 220,000 dollars, financed by credit. Meanwhile, someone earning 70,000 dollars might stow away 15,000 dollars a year in investments, and over time, that can build a tidy sum. So what truly counts is not your salary, but your net worth and your ability to harness that money for future growth.
Let's bring in a practical list of ways to start investing like you are rich, even if you are not there yet.
Number one, be willing to take a little more risk than just stuffing your savings in a bank. While it is important to keep an emergency fund in a reliable savings account, the rest of your investment portfolio should go into assets that can generate higher returns, such as stocks.
Number two, think long term. The wealthy are not day trading or constantly flipping in and out of their positions. They pick a strategy and ride it for decades.
Number three, invest first then spend. If you wait to invest until you have spent on everything else, you will not have enough left over. Automate your monthly investments before you even see that money in your checking account.
Number four, invest in yourself. This includes your education, skill building, or even entrepreneurial projects. Over the long haul, your earning power and expertise can be just as crucial to your wealth as your investment returns.
At this point, you might be feeling a little less intimidated. Perhaps you have realized that you do not need to be a fancy genius to get this right. You do not need to read charts all day or figure out exactly when the market will peak or crash. You do not need to pay tens of thousands of dollars to join an exclusive club of super investors.
You just need to get the basics right. Spend less than you earn, invest that difference in a diversified portfolio of equities, hold steady for many years, and keep your eye on the big picture.
Another element we should not overlook is the psychology of money.
The wealthy, at least those who stay wealthy, often have the mindset that the market is a long term friend rather than a short term gamble. They know how to weather bad news cycles, remain confident when others panic, and cut through sensational headlines.
The sensationalism can derail an average investor who is easily spooked by a day or a week of downturns. Having a rational mindset, or a coach or advisor who can reassure you, makes all the difference. If you need inspiration, read a few quotes from Warren Buffett, who famously said that our favorite holding period is forever. The man is not joking. If you hold a strong asset for decades, you usually reap the benefits of compounding in a big way.
The best part about these lessons is that anyone can start practicing them, whether your net worth is zero, negative, or already in the millions. They are not some insider secret locked in a vault on Wall Street. They are basic rules that might look boring in a sensational world of crypto crazes and meme stocks, but they have proven themselves time and again.
Each year, when you see the list of millionaires or people who have grown their net worth, you can bet that a large percentage got there by doing these fundamentals really well.
Maybe you will not see your name on a billionaire list next year, but the difference between where you stand now and where you want to be could simply be a matter of implementing these habits. Invest first, spend later, keep a cool head, and never underestimate the power of that daily discipline. If you want to have a shot at living comfortably and feeling free from financial anxiety, let the success stories of the wealthy be your inspiration.
Now for one final thought: the wealthiest among us did not pop out of the womb holding a perfect portfolio. Many of them learned from failures, saw their portfolios drop in a recession, or tried a couple of unsuccessful side hustles. They built resilience along with their wealth. You can do the same.
Every step you take toward educating yourself on money matters is a step away from confusion and fear.
So that is the big picture of investing like the 1 percent without succumbing to hype or illusions. We have seen how an overweight position in equities, a patient temperament, and a steady plan can nudge you toward the millionaire ranks over time.
We have also seen that you do not need to sign up for fancy private equity or complicated hedge funds to replicate key elements of their success. You can keep it simpler, pick a basic portfolio mix, and let time do most of the heavy lifting.
As you leave here, remember that your savings rate and investing discipline can matter more than any short term strategy or big market calls.
Life is not guaranteed to be predictable, but your strategy can be. Control what you can, whether that is your spending, your choice of funds, or your attitude toward market volatility. The rest, you learn to roll with.
Who knows, maybe a decade from now, you will be the one others look to for investing tips.
You could be the person who has a cool million or more in the market, feeling calm while your acquaintances panic about every market dip. The payoff comes from trusting the process, letting compounding do its magic, and not getting rattled by drama. Here is to hoping you find that sweet spot where your money not only grows but also supports a life that feels meaningful.
After all, being rich is not just about having a big net worth on paper. It is about being able to live on your own terms and knowing you can handle what life throws your way. That is the essence of true financial freedom, and with a bit of knowledge, discipline, and a nod to what the wealthy already do, you can get there too.
Comments
Dawit Taye
This is the best article for me, thank you very much Tom!!
Island Boy
Awesome message homie
Tom
Gold, Tommy. Great read.
Ryan McLay
Very solid advice! Great read for anyone
Marian
Great article Tom! Love it 💚
Nani Kanen
Everything in this article is on point, eloquent & super informative... Hits all the keys investors, new or old, need to know! Thank you🙏
Mario Golle
Love ❤️ this article.
