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Bryan Borzykowski
Getting and staying rich...
When many of us have a little cash to invest, we might buy a mutual fund or a
stock if we don t blow it on the latest tech gadget. Not the truly wealthy,
however. They often put their money in property, art, businesses and other
investments that the rest of us can only dream of owning. How this rarified
group uses their cash differentiates them from the rest of us and keeps them
in the black.
Take Joshua Coleman, for example. When his family sold their Chicago-based
telecom company for $400m in 2004, they didn t run out and buy something
extravagant. Instead, they began seeking advice on ways to save their newfound
riches and help them grow.
Their quest sparked an idea for Coleman, now 27. In 2011, he launched Momentum
Advanced Planning a firm that connects people to tax, legal and wealth
experts. If the business one day sells, he could see a big return, just like
his family s first business.
If you think that starting a business is an odd way to invest your money, then
you probably aren t among the ultra-wealthy. People who have at least $30m in
assets dubbed ultra high net-worth invest in stocks and bonds, but they
also grow their money by buying companies and investing in unusual securities,
such as airline leasing funds. They also own art and cars that they hope will
appreciate in value.
It s called alpha risk, said Coleman. It s this kind of stuff where there
can be a lot of upside.
As for the downside, many of these investments are riskier than traditional
investments, so there s a higher chance of losing a large chunk of change. As
well, they re far less liquid than stocks and it could talk months or years for
the wealthy to get their money out of an investment.
Even if you don t have millions to invest, though, you can learn a thing or two
about how the rich reap returns and apply it your own portfolios.
Scroll through the images above to see how the rich invest to stay rich and
how you might model their style.
Rich-only investments? Perhaps...
The wealthy have access to a swath of investments that most people don t even
know exist.
Closed-end funds a long-term investment where money is typically tied up for
at least five years offer the very rich access to big returns and high
yields.
Aircraft leasing is one budding area of investment, said Ian Marsh, CEO of
asset management for London-based Fleming Family and Partners, a wealth
management firm that was initially created to preserve the fortune of Ian
Fleming, the creator of James Bond.
His clients work with a company called Doric, which uses investor money to buy
planes which are leased to large airlines, such as Dubai-based Emirates
Airlines.
Investors will eventually cash out of the fund when those planes are sold, but
they can make a 9% annual yield in the meantime from the leases alone. The
average yield on the Standard and Poor s S&P 500 America s main investing
benchmark stock basket is about 3%.
Some closed-end funds require hundreds of thousands of dollars to buy in, but
Doric s airline leasing funds have a more reasonable entry fee, says Marsh. Its
SKY CLOUD series of funds which buy Airbus A380-800s and leases them to
Emirates Airlines have a minimum investment of 10,000 euro ($13,822) and 5%
one-time fee that is based on how much investors put in.
Ultra high-net worth investors in the UK and elsewhere are also buying up
farmland. As the global population grows, demand for food will also increase
and those who own prime agricultural land could see good returns, said Marsh.
Arable land is a finite resource the harder something is to come by the better
the return.
According to Marsh, good land can earn a yield of about 4% a year for an
investor, plus appreciate in value over time. Few regular investors can afford
to invest in a plane fund or buy a plot of rich farmland, but there are some
more-accessible closed-end funds that offer a way to invest in global
infrastructure, even wine. There are also some publicly listed companies that
people can buy on the stock market. For instance, Gladstone Land is a US-listed
company that buys farmland.
Buy more businesses, of course...
It s a natural for wealthy individuals, many of whom made their money owning
companies, to buy into other businesses. Coleman invests in a number of other
companies, mostly in the professional services and tech sectors. He has a stake
in so many operations that he can t give an exact number.
It s a lot, he said.
He s usually investing with a group of investors and a private equity firm, and
he ll invest more than $1 million to get a piece of an operation.
It s fun to see companies go from nothing to something and many investors have
the experience and networks to help get a business off the ground, said David
Rose, a New York-based ultra-wealthy entrepreneur and author of Angel
Investing: The Gust Guide to Making Money and Having Fun in Startups.
Imagine investing in Google when they were still in their trailer, he said.
You can meet the founders on a weekly basis, get a first hand look at what s
happening and see it grow. That can be a lot of fun.
It can also be lucrative. Though investors put their money at risk 50% of
startup companies go bust, said Rose a wealthy investor usually makes 20
times to 50 times their initial investment on one or two companies that do
succeed.
Rose usually puts between $50,000 and $100,000 in a company, and he said he has
made millions off some of his investments.
At the moment, it s difficult for the average investor to invest directly in a
business, unless they hand over some money to a friend or family member, says
Rose.
However, a new piece of US legislation, passed in 2012, may allow regular
people to invest in startups. It s not yet clear how this will play out.
Play up pricey passions...
Passion investments, such as art, cars, watches, wine and even musical
instruments, are big among the rich, said Guy Hudson, executive director and
head of business development at London s Stonehage Investment Partners, a
global wealth management firm.
While people want these assets to grow in value, they re also buying them to
either use or look at.
These investments always arise from the investor s passion for that particular
object, said Hudson.
For investors who buy the right passion investments finding something rare is
key here they can see solid returns. According to his company s research, the
value of investments of passion rose by nearly 15% in 2013, said Hudson.
There are several ways for regular investors to buy passion investments, says
Hudson. A wine fund sold by The Wine Investment Fund requires a minimum 10,000
euro ($13,822) investment, for instance, and there are other funds that focus
on art and cars. Take note: some may require the investor to be accredited, so
even if the initial fee is low, you may not be able to purchase the fund.
You can also buy art for affordable prices at auction. Up and coming artists
will sell their pieces at reasonable rates, he said.