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.

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.

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.”

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)

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 |

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.