People whose financial literacy is at a sufficient level understand that keeping your money safe and investing your funds are different investment operations.
- The aim of storing your money is to protect your hard-earned capital against different external risks. It should be at least saved for heirs and not lost in any risky undertakings. Ideally, the capital you keep should bring some profit.
- The aim of money investment is somewhat different, and it involves as reasonable spending as possible on your personal needs, as well as the needs of society and the environment. It would be great if you managed to earn something with these investments. However, if your investment efforts turned out to be futile, there is nothing wrong with that as you don’t spend your last penny.
Money investment has some logic about it. When a person can buy anything to satisfy his basic needs in life, he sets other priorities, such as the need to be respected, to have a sense of self-worth, to engage in creation, to pursue aesthetics and beauty, and to set self-development goals. This is human nature: we just see the evolutionary development laws at work.
Let’s have a look at where the rich invest the extra money they have.
1. Spare Passports and Residence Permits
It may seem surprising to you but additional citizenship or a residence permit can be an instrument that helps you preserve or increase your capital or just a way to invest your money. Here is the difference:
- If a foreign investor buys a mini-hotel in Montenegro and receives a resident’s status as a result (and he could even get economic citizenship before 2023), as well as a possibility to open bank accounts in euros, register a business and receive income, this means that money is preserved.
- If a foreigner buys a Caribbean investment passport by making a non-refunded contribution to the country’s state funds, it will mean an investment of money. This has even more truth in it if the only purpose of new citizenship is increased mobility, including visa-free access to some countries (just to have a safe airfield). The investor consciously makes a non-refundable contribution to the country’s economy and is really happy to be of use to the new homeland and obtain more opportunities and freedom at a low price.
As we see, a new legal connection with the state can be considered an investment and a way to preserve your money. Everything depends on the investor’s goals, priorities, plans, motivation, and personal situation.
2. Innovative Entrepreneurs and Start-Ups
The majority of innovative projects are launched and developed at the expense of venture capital. Wealthy people invest in start-ups most often as independent business angels or join crowdfunding platforms. The other investment market participants (seed funds, business accelerators, venture funds) deal with start-up financing on a professional basis.
Investors choose which projects to invest in depending on their preferences:
- Someone thinks it is right to support a start-up in the biotech sphere
- Others believe in fintech projects
- Some prefer investing in ed-tech startups
- There are investors who see good prospects in the foodtech industry
- There are also proptech (property + technologies), legaltech, retailtech, greentech, and other new segments.
Professional venture market players advise the budding business angels to invest no more than 5% of the free capital in startups, join other investors if possible, and allocate no more than $15-20 thou. per project. If you stick to these recommendations, investments will be as safe as possible as these are the money investments that carry the highest risks.
According to the studies conducted by Harvard Business School, 75% of startups in the States are not worth the investment – that is, they fail to bring profit. The result is worse than expected at best, while other projects just go bankrupt.
If innovation start-ups are high-risk investments with a minimum chance of success, what’s the point of funding such projects? The reason is that rich people want to create a new future and strive to get a new experience. After all, if the Chinese investor Neil Shen had not once risked sponsoring the idea of ByteDance we would never have seen TikTok, the world’s most popular social network.
3. Renewable Sources of Energy
Freedom and independence are the key values for the rich people they are ready to invest in. Energy autonomy thanks to renewable sources of energy is a good investment option, especially in countries where traditional energy resources need to be imported. Even if you live in a region that is rich in fossil fuels, why not invest in Plan B? The possibility to independently generate energy gives the following opportunities:
- Reduced dependence on the resources controlled by the state
- Continuous access to electricity and heating regardless of critical situations (breakage of power lines due to harsh weather conditions, long-term repair works, disconnection of traditional energy sources due to a force majeure in the region)
- A possibility to construct a building in any place without any apprehensions that connection to traditional utilities will cost sky-high (a country cottage, a farm, or any other facility for those who like living far from civilization);
- Additional earnings in the future if you sell the excess generated energy to resource firms.
Of course, you cannot fully replace traditional resources with renewable energy sources, but there are solar panels or wind turbines in each private house in Europe as a reserve. The tendency to use green solutions is not always connected with being environmentally conscious; this is rather an attempt to be independent and involved in innovations.
4. Infrastructural Objects
An important personality trait of wealthy people is the scale of thinking. It means that they have a broader outlook not only on the business opportunities but also on the world around them as a whole, so their house is not limited by their private property. A house for the rich extends to their street, residential area, and even the city where they live. They treat public spaces as their own (in the good sense of this word), so they take care, including by investing money, to improve the quality of life for their neighbors.
Middle-income people take care of their street, block, or city, and they can pay for repairs in the entrance, asphalt the road near their house, or construct a children’s playground. Private contributors with a large capital have much more opportunities to improve their city, and here are some examples:
- Francois Pinault, a French billionaire, restored the grain exchange house in Paris to open a private museum accessible to the wide public.
- Bernard Arnault, President of LVMH, built the Fondation Louis Vuitton in 2014 from scratch, thus creating a new place of interest for Parisians and city visitors.
- Bernard Marcus, the founder of the Home Depot store chain, opened the US largest public oceanarium in Atlanta, Georgia.
- As you probably know, Warren Buffett is going to donate 99% of his wealth, and this quest is still going on.
- Bill Gates donated about 2 billion for vaccines against Covid-19.
Extra-rich people also help to build hospitals, medical centers, libraries, educational establishments, theaters, and places of worship for religious rites all over the world. Surely, we can say that the urban infrastructure objects and public buildings should be taken care of by the state. But wealthy people often improve the world around them by themselves, without waiting for the local treasury to allocate some money to city or settlement improvement.
This altruism helps wealthy people to show their ambitions and cultural level and bring benefit to as many people as possible as this is where they see their happiness. However, noble goals contain practical motifs in them, too: many countries allow individuals and companies to optimize their taxes if they make donations.
There are many more ways to invest a large fortune as there are millions of opportunities in the world to spend your money on a noble cause. However, we attach a lot of importance to the principles that guide rich people to share their wealth with others:
- They invest less than they earn.
- It is important for them to keep assets not just by making useful and profitable purchases but also in liquid formats, for example, in traditional currency.
- When wealthy people satisfy higher needs, they not only strive for personal growth but also wish to write their name in history.
This article is not written to show the wealth possessed by the powers that be but understand the logic of financial thinking characteristic of them. Anyway, it is the thinking that helped them earn their fortune. Study the best examples to become more successful!