How do the wealthy manage and invest their money? Let's explore how understanding interest rates and the investment strategies of the rich can help us learn how to make money.
Understanding Interest Rates Among the Wealthy
Interest rates are a frequently discussed topic in wealth-related lectures. However, even banks fail to accurately predict interest rates. Domestic banks often set fixed interest rates at least 1% higher than variable rates due to their inability to forecast changes accurately. As a result, borrowers typically choose variable-rate loans, bearing all the risks associated with interest rate fluctuations.
Changes in Funding Methods
Banks procure funds through various methods, such as deposits, bank bonds, and CDs. Historically, they operated with a focus on CD rates for both funding and lending. However, following the financial crisis, CD rates plummeted, leading to a scenario where funding costs remained high while lending rates dropped. Despite the government's efforts to stimulate the economy by lowering interest rates, banks did not reduce lending rates proportionally.
Investment Strategies of the Wealthy
Wealthy individuals prefer savings and bonds when interest rates rise and invest in real estate when rates fall. Nonetheless, their investment strategies do not always guarantee success. For instance, Michael Bloomberg, despite diversifying his investments in real estate, stocks, and bonds, suffered significant losses during the 2008 financial crisis.
Asset Allocation Proportions
High-income individuals typically allocate their assets as follows: 40.5% in fixed deposits, 30% in stocks, 15% in bonds, and 15% in insurance. Low-income individuals, on the other hand, allocate 75% to fixed deposits, 15% to stocks, 5% to bonds, and 5% to insurance. Although the wealthy tend to invest more in stocks, this strategy is not always successful.
Debt and Investment
Debt serves as a tool to level the playing field among market participants. However, the scope of investment opportunities varies significantly between the wealthy and the average person. Wealthy individuals earn more from fixed deposit interest alone than many earn from stock market investments. Therefore, adopting the investment mindset of the wealthy does not always lead to success.
Conclusion
Through examining the investment strategies and understanding of interest rates among the wealthy, we have explored ways to make money. It's crucial to recognize that the investment methods of the wealthy are not always successful and to find investment strategies tailored to individual circumstances.