3376: How Do the Wealthy Invest? by Nick Maggiulli of Of Dollars and Data on Building Wealth Mindfully

Summary

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Episode Overview

Podcast: Optimal Finance Daily
Host: Diania Merriam
Episode: 3376 – "How Do the Wealthy Invest?"
Guest Author: Nick Maggiulli of Of Dollars and Data
Date: December 5, 2025

This episode explores how the wealthy invest their money, drawing from major studies and expert commentary. The central question: Do the wealthy invest differently, and what can the average person learn from them? Nick Maggiulli breaks down key findings from recent research, dispels common myths about wealth-building strategies, and emphasizes a mindful approach to building wealth.

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Key Discussion Points and Insights

1. Younger vs. Older Wealthy Investors (01:22–03:10)

• Nick summarizes a large Bank of America 2022 Private Bank Study of 1,052 households with over $3 million in investable assets.
  • Younger wealthy households (21–42):
    • More skeptical of traditional investments.
    • Allocated only 25% to stocks, but 15% to crypto.
    • Higher interest in sustainable investing (ESG).
  • Older wealthy households (43+):
    • Allocated 55% to stocks, only 2% to crypto.
  • Differences in what each group sees as growth potential:
    • Younger: crypto, real estate, private equity.
    • Older: US stocks, real estate, emerging markets.
• Quote (Nick Maggiulli, 02:42):
  “At first glance, the divergence in investment beliefs between younger and older wealthy households suggest that wealthy households may be changing how they invest.”

2. Why 'Younger Wealthy' Are Unique Outliers (03:11–04:30)

• Nick highlights flaws in interpreting these results:

  • Wealth and age are correlated; the study oversamples young people who are outliers (inheritors, founders, crypto winners, etc.).
  • Earning $3 million at age 25 puts you in the top 0.1%, versus top 7% at age 55.

• Quote (Nick Maggiulli, 03:52):
  “Wealthy households are exceptional, but younger wealthy households are even more exceptional in how they got wealthy.”

• Cites Michael Kitces:
  “This isn’t generationally unique. People who make money from private companies ... tend to keep seeking private or alternative investments.” (04:08)

3. Defining ‘Wealthy’ and How Net Worth Alters Investment Strategy (04:31–05:37)

• Discusses a KKR report, breaking down allocations:
  • High net worth investors ($1M+): 50% stocks, 20% bonds, 25% alternatives, 5% cash.
  • Ultra-high net worth ($30M+): 30% stocks, 10% bonds, 50% alternatives, 10% cash.
• The very wealthy move more capital into alternatives like private equity and hedge funds.

4. Alternatives—Not the Path To Wealth, But a Place to Park It (05:46–08:18)

• Alternatives are popular mostly among the ultra-wealthy:

  • Only 14% of ‘mass affluent’ use alternatives, vs. 81% of ultra-high net worth.
  • Regular investors (even sophisticated ones) rarely have more than 3–4% allocated to alternatives.
  • Pension funds now mimic ultra-wealthy portfolios more than in the past.

• Access is limited:
  “While anyone with $1,000 can buy an S&P 500 index fund, the same isn’t true for private equity or a hedge fund.” (07:13)

• The exclusive nature of alternatives can be as attractive as outperformance; sometimes, it’s as much about status as it is about returns.

• Key insight: Wealth does not originate from alternatives—most people get rich first, then diversify into alternatives.

• Quote (Nick Maggiulli, 08:10):
  “There seems to be an obsession with the wealthy and how they invest their money, as if their allocation decisions are what created their wealth. ... Many other wealthy people didn’t. They got rich as business owners, doctors, or lawyers or something else and have since allocated their wealth to private equity and hedge funds.”

5. Core Takeaway: There Are Many Ways to Build and Grow Wealth (08:19–09:31)

• The allocation strategies of the wealthy are diverse.
  • Some stick to stocks, bonds, and real estate.
  • Others add a wide mix of alternatives as their wealth and access grow.
• Despite the growth of alternatives, the wealthiest 10% of Americans own nearly 90% of all US stocks.
• There is no single way to build or preserve wealth—find what works best for you.

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Diania Merriam’s Commentary (11:55–12:55)

• Diania underscores the value of simplicity for new investors:
  • Stick with broad, tried-and-true investments before dabbling in alternatives.
  • High-net-worth investors have more bandwidth for risk; beginners should master the basics first.
• Shares a story:
  • A family member, deep in debt with no investments, wanted to invest $100/week in an obscure cryptocurrency.
  • Diania advised they use the money to pay down debt and contribute to traditional retirement accounts before chasing speculative alternatives.
• Quote (Diania Merriam, 12:25):
  “So much of investing can be driven by greed or fear, but ... the purpose of investing is to grow our money over time to reach a financial goal. It doesn’t have to be a competition ... or a gamble on the next big thing.”

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Notable Quotes & Memorable Moments

• “Wealthy households are exceptional, but younger wealthy households are even more exceptional in how they got wealthy.” (Nick Maggiulli, 03:52)
• “This isn’t generationally unique. People who make money from private companies ... tend to keep seeking private or alternative investments.” (Michael Kitces, cited at 04:08)
• “While anyone with $1,000 can buy shares of an S&P 500 index fund, the same isn’t true when it comes to investing in private equity or a hedge fund.” (Nick Maggiulli, 07:13)
• “Just because wealthy investors allocate more to alternatives, this doesn’t imply that alternatives are what got them rich in the first place.” (Nick Maggiulli, 08:00)
• “So much of investing can be driven by greed or fear, but ... the purpose of investing is to grow our money over time to reach a financial goal.” (Diania Merriam, 12:25)

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Timestamps for Key Segments

| Timestamp | Segment / Discussion | |------------|--------------------------------------------------------| | 01:22 | Introduction of Bank of America study, generational differences | | 03:52 | Uniqueness of younger wealthy outliers | | 04:08 | Michael Kitces’s insight on private wealth origins | | 04:31 | Defining ‘wealthy’; KKR allocation data | | 05:46 | Divergence toward alternatives with rising net worth | | 07:13 | Exclusivity of alternatives and access limitations | | 08:00 | Alternatives aren’t the starting point of most fortunes | | 08:19 | Diversity of wealthy investment strategies | | 11:55 | Diania’s practical commentary and real-world analogy |

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Final Takeaway

This episode dispels the myth that rich people got that way primarily through exotic or alternative investments. Instead, most built wealth through more traditional paths—business, high income, or fortunate entrepreneurship—and only afterwards did they allocate a greater portion to alternatives for the sake of diversification, status, or access. For listeners striving for financial independence: focus on foundational investing before considering alternatives; keep your strategy simple, rational, and aligned with your goals.

Transcript

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[Nick Magiulli]

This is Optimal Finance Daily. How do the Wealthy Investors? By Nick Magiulli of of dollars and data.com.

Do the wealthy invest differently from everyone else? And if so, what can we learn from them? Bank of America released their 2022 Private Bank Study of wealthy Americans, which attempted to answer some of these questions. Their study, which took place from May to June of 2022, asked 1,052 households with more than 3 million in investable assets, how they invest, and how they felt about different asset classes as well. Among their key findings were younger wealthy households. Those aged 21 to 42 were more skeptical of traditional investments and more likely to Support sustainable investing, I.e. eSG than older wealthy households, those 43 and up. In particular, older households allocated on average 55% of their portfolios to stocks and stock index funds, while younger households only allocated 25% to stocks. In addition, older households allocated only 2% of their portfolio to cryptocurrency investments, while younger households allocated around 15%. And lastly, there was a difference of opinion about which investments offered the greatest growth potential going forward. While younger households believed that cryptocurrency, real estate, and private equity offered the best growth opportunities, older households believed it was US Stocks, real estate, and emerging market stocks. At first glance, the divergence in investment beliefs between younger and older wealthy households suggest that wealthy households may be changing how they invest. While the wealthy used to invest in stocks, bonds and real estate. This study suggests that going forward they may prefer investments like crypto, private companies and other alternatives. Unfortunately, I don't think this is the full story, but an artifact of the study's design. For example, since wealth is positively correlated with age, that is Years worked by subsetting to only those with high amounts of wealth, you end up over sampling those younger households with extraordinary financial circumstances. In other words, wealthy households are exceptional, but younger wealthy households are even more exceptional in how they got wealthy. You can see this clearly in the data. For example, having $3 million in net worth excluding home equity would put you in the top 7% among 55 to 59 year olds, but near the top 0.1% among 25 to 29 year olds. This demonstrates just how unique these younger, wealthier households really are. Some of them started with more initial wealth than most, like inheritances and parental support, while others had atypical financial success like a company went public or got acquired, they bought crypto early, etc. As a result, it would make sense that these younger wealthy households would feel differently about how to get rich than most people who get rich. As Michael Kitces stated about this survey quote, this isn't generationally unique. People who make money from private companies, I.e. founders, executives, tech with stock options, etc. Tend to keep seeking private or alternative investments, end quote. And this is likely what happened here. By looking at the absolute richest younger households, it would be easy to draw conclusions that wouldn't be applicable to the rest of the wealthy population. But this raises a much bigger how do you define wealthy? What does wealthy mean to you? If you want to understand how the wealthy invest, it depends on what you mean by wealthy. The best demonstration of this comes from a KKR report which breaks down how high net worth investors, those with more than a million in assets and ultra high net worth investors, those with more than 30 million in assets, invest their money. High net worth investors allocated around 50% to stocks, 20% to bonds, 25% to alternatives and 5% to cash, while ultra high net worth investors allocated allocated around 30% to stocks, 10% to bonds, 50% to alternatives and 10% to cash. This divergence of capital away from traditional asset classes like stocks and bonds and towards alternatives, I.e. private equity, hedge funds, etc.

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Seems to be positively correlated with the.

[Nick Magiulli]

Amount of wealth that someone has. As Ernst and Young reported, only 14% of mass affluent households relied on alternatives in their portfolio and compared to 29% of high net worth households and 81% of ultra high net worth households however, this shift towards alternatives only seems to be occurring among the absolute wealthiest households. Among personal capital users, the average allocation to alternatives is only around 3 to 4%, regardless of age. Though the typical personal capital user is likely more sophisticated and wealthier than the typical US investor, we still don't see a big push towards alternatives among these retail investors. This is true despite the fact that alternatives have become increasingly popular over the past few decades. As BlackRock reported quote, alternative investments, which include non traditional asset classes such as private equity, private credit, real estate, infrastructure and more, represented just 5% of global pension portfolios in 1996. In 2019 they accounted for more than 25%. Though pension investors aren't the same as wealthy individual investors, their portfolios are becoming more alike over time. More assets equals more alternatives. To understand why there's been a shift towards alternatives among the wealthiest investors, consider the alternative investment continuum put forth by Bob and Ben Frazier on the Invest Like a Billionaire podcast. Their framework suggests that as an investor's assets increase, they tend to allocate more to alternative investments. Why is this the case? Because access to alternative investments is typically limited by your bankroll. While anyone with $1,000 can buy shares of an S&P 500 index fund, the same isn't true when it comes to investing in private equity or a hedge fund. For some wealthy investors, the exclusivity of an investment can can be even more attractive than the promise of outperformance. Not all investing is about money. Sometimes it's about status too. Either way, just because wealthy investors allocate more to alternatives, this doesn't imply that alternatives are what got them rich in the first place. These ultra wealthy households could have gotten rich in a myriad of other ways that didn't require alternatives at all. They could have been born rich or or sold a private company or joined a successful startup as an early employee. Once they were wealthy, then they could have acquired their alternative investments. I raise this point because there seems to be an obsession with the wealthy and how they invest their money, as if their allocation decisions are what created their wealth. Of course, for some wealthy individuals this is true. Warren Buffett got rich based on how he invested his money, but many other wealthy people didn't. They got rich as business owners or doctors or lawyers or something else, and have since allocated their wealth to private equity and hedge funds. Keep this in mind before making any changes to your portfolio. The bottom line, if we can learn anything from how the wealthy invest, is that they do it in a lot of different ways. Some of them own stocks, bonds and real estate, while others utilize a wide range of alternatives. And though the data shows that wealthier people tend to own more alternatives, this doesn't mean that they've abandoned traditional asset classes. Try not to forget that the wealthiest 10% of Americans own nearly 90% of all U.S. stocks. All of this suggests that there are many ways to get rich. There are many ways to preserve and grow your wealth. The hard part is finding what works best for you.

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[Nick Magiulli]

You I thought Nick made some great points in this article and reiterated for me that a simple investment strategy in tried and true vehicles is a fantastic way to build wealth, especially when you're first starting out. While alternative investments may appear to be more exciting, they can also come with more risk. A high net worth individual perhaps has more financial bandwidth to stomach that risk versus a new investor who doesn't have the basics down yet. This article reminded me of a conversation I had with a family member a couple of years ago. They called me out of the blue and asked my opinion on their new investment strategy. They wanted to invest $100 per week in some cryptocurrency I've never heard of. This person had a ton of debt and no other savings or investments. While my response wasn't as exciting as their cryptocurrency plan, I told them I thought it made more sense for them to put that $100 per week towards debt payoff as well as 401k and IRA contributions. And then once they had solid footing on these more traditional investments, they can start to look at alternatives. So much of investing can be driven by greed or fear, but I think it's helpful to remember that the purpose of investing is to grow our money over time to reach a financial goal. It doesn't have to be a competition where we're trying to get a higher return than our neighbor or gamble on the next big thing. And that will do it for today. Have a great day and start to your weekend. If you're listening in real time and I'll be back here over the weekend where your optimal life awaits.