Large capitals must be diversified to protect against risks. You can’t put all your eggs in one basket. Rich people understand this, so they convert their money into assets with varying degrees of liquidity. Usually, billionaires distribute money in different directions based on the following principles:
- Some assets have to generate a passive income (usually, these are long-term investments).
- Part of the money should simply be safely hidden from ruinous wealth taxes, unstable political regimes, and unfair legislation that allows the seizure of property or sanctions.
- Other savings should be kept in a highly liquid format to quickly turn them into cash without tangible losses.
- A small part of the assets can be directed in highly profitable, albeit risky investments, according to such principle: if everything works out and you are lucky, you will get extra profit, but if the idea turns out to be unviable, you have to be prepared to lose the entire investment.
We will look at popular and proven ways to save and increase the money billionaire investors use. How do HNWIs (high-net-worth individuals) protect their assets from inflation and confiscation risks and bypass restrictions on exporting assets abroad? You will find answers below.
1. Reserve passports and residence permits
- The second (as well as the third, fourth, etc.) citizenship does not have to be an investment one. There are other ways to establish a legal connection with another state:
- Spend a few years naturalizing.
- To give birth to a child in a country where citizenship by right of soil is allowed (Commonwealth of Dominica, Mexico, Costa Rica, Cuba, Argentina, Brazil).
- Take advantage of repatriation programs.
- Take steps to become an honorary citizen for special services to the new homeland (many countries do not have official citizenship by investment programs, but if you invest enough in the economy, the government will notice this).
In general, it is more important to choose a suitable state and then decide how to get a new passport or a residence permit because a legal connection with another country is an excellent opportunity for:
- paying taxes in another jurisdiction at fairer rates
- registering a new company and expanding business opportunities
- opening an account in an offshore bank to store money and simplify settlement operations
- finding a safe haven where you can wait out turbulent times.
Of course, a reserve passport can hardly be called a direct tool for storing money. At the same time, the new citizenship opens up additional opportunities for mobility and moving around the world, transferring part of the assets to a safe place, new investments, and tax optimization. Additional passports and residence permits are not in vain considered the most profitable and secure investments for billionaires.
2. Deposit accounts in banks
Trust in the banking system of different countries only decreases with every new year. The reason is the proliferation of cryptocurrencies, electronic wallets, and regular news about arrests of bank accounts. Billionaires have long understood that many banking institutions should not be trusted.
For a long time, the reputation of Swiss banks remained inviolable, but in 2023, the reliability of these organizations also shook. For example, one of the largest banks in the country, Credit Suisse, is not the least likely to go bankrupt.
Be that as it may, bank deposit accounts are still a tool for billionaires to store money and receive passive income, but nowadays HNWIs more carefully choose financial institutions. In particular, billionaires prefer that opening an account in a foreign bank brings an additional advantage – investment citizenship (also called a “Golden Visa”), for example:
- In Turkey, to obtain a second passport, the candidate is required to choose between investment in a property worth over $400,000 or depositing $500,000 into a deposit account at a local bank.
- In Spain, to obtain a “Golden Residence Permit”, you need to either buy a property worth over 500,000 euros or open a deposit in a local bank for 1 million euros.
- In Portugal, to obtain a “Golden Visa”, you have to make a real estate investment of over 500,000 euros or place a deposit of 1.5 million euros in a bank.
The list of jurisdictions is incomplete, but a specific trend can be traced. If a billionaire is faced with a choice: to spend money on real estate or to transfer money to a bank for a deposit, a candidate for citizenship or a residence permit is more likely to choose the second option, even if the interest on the deposit is negligible or even at a zero rate. But why? After all, the option with real estate investment looks more profitable. Actually, this is not true:
- Square meters are extra costs and worries. Housing needs to be looked after, and taxes and utility bills must be paid regularly, even if a billionaire investor does not live there. It is also not easy to make money by renting out real estate. And the money in the deposit account does not require attention.
- As the observations of many owners show, real estate in other countries can be a distressed asset. For example, in Portugal, the quality of investment facilities is deficient due to buildings’ dilapidation and accident rate. The internet is filled with stories about Spanish Okupas. After the devastating earthquake in Turkey in February 2023, not only the houses of local residents were destroyed, but also those bought by investors. And the money in the bank is in maximum safety, protected from natural disasters, and insured.
- When the allowed period for the return of assets comes, withdrawing money from a bank account is easier and faster than starting a real estate sale, looking for buyers, and incurring additional costs for processing the transaction (collecting a package of documents, paying for intermediary services, various taxes, and fees).
However, the traditional keeping of money on a bank deposit, without benefits in the form of second passports and “Golden Visas”, is still practiced by billionaires, but with certain requirements:
- The bank does not participate in exchanging information and respects the client’s right to confidentiality.
- Deposits are protected from loss, and insurance compensation is as high as possible. For example, deposits in the USA are insured for $250,000, in EU banks – for 100,000 euros, and in Norway – for 2 million crowns ($193,000). Most other countries have lower limits.
- The bank deposit is not subject to taxes on deposit interest in the country of placement or taxes on wealth.
3. Real estate and REITs
Real estate investment objects should be understood not only as residential premises but also as non-residential ones (street retail, separate buildings for various purposes, special commercial facilities: garages, parking lots, student dormitories) and, of course, land plots. Here are some trends as we look at what real estate billionaires invest in the most:
- Billionaires usually acquire residential buildings and apartments for personal purposes and not as income-generating property. The super-rich don’t do the mundane things like buying an apartment in the center of a famous tourist city to rent out – that’s middle-class income. If billionaires want to make money on housing stock, then we are talking about investments in square meters at the initial stages of construction and further resale at the peak price.
- To earn money, billionaires more often invest in non-residential facilities, the profitability of which is significantly higher than that of residential real estate, and operating costs are lower.
- Biilionaires prefer to buy and formalize real estate ownership not in their own name but using intermediary owners: trust funds, investment companies, and other intermediaries. Thus, billionaires protect their property from the declaration and possible confiscation.
- When choosing the country and city where the future real estate will be located, the last thing investors pay attention to is whether they will receive investment citizenship or a residence permit for property purchase. For billionaire investors, the following are of decisive importance: the land plot value, the quality of the building materials, urban infrastructure, the natural environment (sea, mountains, climate), tax rules in the region, and so on. Billionaires spend money for the property that suits them according to specific significant parameters, and not because the authorities promise an investment passport in addition.
- Owners of huge capitals use every opportunity to purchase expensive real estate on credit, not with their own money. That is why they remain super-rich people. Billionaires know how to make credit programs profitable for themselves by paying minimal interest. The desire to purchase real estate with mortgages is another reason why wealthy people do not pursue citizenship by investment programs. In many countries, according to immigration laws, to qualify for an investment passport by real estate purchase, it is necessary to pay for this property by 100%, which is unprofitable for most billionaires.
As you can see, billionaires do not use obvious solutions when buying real estate. If they want to buy a villa in Spain, they are more likely to ignore the government’s “Golden Residence Permit” program. It is easier for such buyers to make a deal for credit money and register the purchase for an intermediary owner than to get involved in an audit of the origin of funds for the sake of a residence permit. If a billionaire ever needs a long-term visa or a Spanish passport, they will find other reasons to get this status.
Due to their strategic vision in real estate ownership, billionaires prefer not to be the sole property owner because it is the sole responsibility. Many of them prefer to make investments in real estate investment trusts (REITs). This is the acquisition of REIT shares that are listed on stock exchanges. Thus, billionaires form a portfolio of real estate assets.
In fact, this is the purchase of a part of a real estate object, which a REIT management company handles. In return, the billionaire investor receives regular dividends from income generated through real estate transactions. Such transactions are profitable and convenient for the investor. The ownership of REIT shares does not imply direct ownership of a real estate object with all the ensuing consequences (taxes, maintenance, risks of loss), but it does imply regular income.
Good old cash will never lose its appeal because it is the most liquid asset when most of the capital is invested for the long term and is in circulation. Of course, wealthy people carefully choose the format of cash money for storage. This is definitely not dollars, euros, and rubles, which do not keep pace with inflation. The pandemic year 2020 has shown that recognized world currencies are worth nothing because their turnover increases due to the printing press (uncontrolled emission), which means that they are not backed by anything.
Therefore, billionaires choose world currencies that show a stable rate:
- CHF. The Swiss franc is backed by 40% gold. Over the past decades, the franc has only been growing.
- CNY. The role of China in the global economy is becoming stronger and stronger, which means that the national currency is traded on international markets.
- GBP. One of the reserve currencies of the world.
- Currencies of the Middle East countries (AED – dirham of the Emirates, OMR – Omani riyal, SAR – Saudi riyal). These are not very traded currencies, but the money of the oil-producing regions is the best protected from inflation in the world.
The financial instruments used by billionaires can be varied:
- money market investment funds
- short-term bills
- treasury bills
- stakes in companies
- mutual funds
- other money equivalents, including popular crypto-currencies.
Clearly, billionaires don’t manage their investment portfolios on their own. Such issues are the responsibility of professional brokers. The main thing is that investments in securities should be with a low level of risk (and this is a low yield) and as liquid as possible (quickly sold without loss in value).
6. Various goods
These are collectible objects, luxury items, and products that improve the quality of life. Billionaires buy all these goods with a further aim to resell at a higher price or not lose too much in value, for example:
- antiques (old coins, manuscripts, musical instruments, carpets)
- precious metals in ingots, not jewelry (gold, silver)
- contemporary art (paintings, expensive musical instruments, sculptures, photos)
- transport (private jets, premium cars).
Most of the products listed are bought with the help of art consultants with art education and extensive experience. Such investments are not a charity and not a craving for beauty but an opportunity to make long-term investments that will pay off well in the future.
7. Agricultural land
With an increase in the human population, the land on which something can be grown for food, and not just plots where a building can be built, will rise in price. Of course, billionaires will not be personally engaged in farming or raising livestock, but they will invest in an agricultural enterprise because this area is the future.
They prefer to buy land plots in developing countries: in South America, Central, Southern or Eastern Europe, in some African regions. Not all jurisdictions allow foreign individuals to buy land, but rich people have the ability and resources to get around these prohibitions (residence or citizenship, registration of a local legal entity, intermediary owners).
This article does not list all ways to store money, but quite common ones. As you can see, extra-rich people choose non-obvious ways to diversify their capital. Thanks to extraordinary decisions and the ability to predict, they earned their fortunes.
If you have any questions about diversification and protection of assets, investments, opening bank accounts, and other business issues, please contact our experts in any convenient way.