– You might not have the lifestyle of the rich and famous, but you can certainly invest like them.
In this episode, Jeremy Keil speaks with Ben Fraser, Chief Investment Officer at Aspen Funds about how to invest like a billionaire. They discuss private alternative investments and how the ultra-wealthy invest differently. Ben explains his background in banking and his transition into the private equity world before touching on the concept of accredited investors and the requirements to qualify.
Jeremy and Ben talk about the different types of private real estate investments, the importance of understanding the risks associated with private investments, life insurance as an investment vehicle, and the strategies billionaires use to maximize their assets and leverage the tax code to their advantage.
- The benefits of investing in private markets
- The top 4 ways you can invest like a billionaire in the private alternative investment market
- How billionaires use the tax code to their advantage, and how you can too
- What an accredited investor is and who can become one
- What the billionaire mindset is
- And more
How To Invest Like A Billionaire
How can I invest like a billionaire?
Billionaires focus on compounding their existing wealth instead of only accumulating more assets or increasing their income. They often allocate a significant portion of their portfolios to private alternative investments like private equity and real estate.
To invest like a billionaire, prioritize growing your investments. While not all aspects of their approach may be replicable for smaller investors, adopting similar strategies and diversifying into private alternatives can help maximize risk-adjusted returns over the long term.
What are the benefits of investing in private markets?
While it’s true that not everyone may be suited for private investments due to factors like transparency and illiquidity, they can provide advantages.
Firstly, private markets often yield lower volatility, making them an attractive option for those concerned about the ups and downs of public markets.
Secondly, private investments may offer better diversification, unlike traditional portfolios that have become less diversified due to increasing correlations between stocks, bonds, and publicly traded REITs.
These factors make private market investments appealing for those seeking lower risk and more diversified portfolios beyond simply buying index funds or the S&P 500.
How can I invest in alternative investments like a billionaire?
To invest in alternative investments like a billionaire, you can start by taking a gradual approach and educating yourself about the options available.
A significant regulatory change occurred in 2012 with the Jobs Act, which made it easier for sponsors of private real estate and other alternative investments to market their deals to a broader audience. This lowered the entry barriers and allowed individual investors to explore these opportunities.
There are various platforms and crowdfunding websites where you can begin with smaller investments in private assets. As you gain confidence and seek to invest more substantially, you can consider joining communities, consulting with advisors, or leveraging broker dealer networks used by larger operators.
Key alternative investment categories mentioned include private real estate, private credit, and private equity, which are favored by the ultra-wealthy. Ultimately, your choice should align with your comfort level, understanding of due diligence, and the degree of control you want over your investment decisions.
What is an accredited investor?
An accredited investor is an individual or entity that meets certain financial criteria, allowing them to participate in investments typically considered more complex or riskier, such as private equity or real estate.
The criteria for accredited investors involve either having an annual income of over $200,000 as a single-income earner or $300,000 jointly with a spouse or having a net worth of at least $1 million, excluding the value of their primary residence.
Accredited investors are generally assumed to have a higher level of financial knowledge and capability to undertake due diligence and engage in more sophisticated investment opportunities compared to the average investor. There currently are no tests required to become an accredited investor; it is based solely on meeting the financial thresholds described.
How can I invest in private real estate?
Investing in private real estate can offer various opportunities beyond owning rental properties directly.
Private real estate investments often involve pooling investor capital for specific real estate strategies, such as multifamily apartment buildings or industrial real estate. These investments allow individuals to become part owners of these properties without the need for hands-on property management. For example, you can invest in large apartment buildings in growing metro areas, where the strategy may involve renovating units and adding amenities to increase property value.
Private real estate investments provide a passive way to participate in the real estate market and offer a diverse range of options for investors to choose from based on their preferences and investment goals, making it accessible for those interested in the private real estate sector.
What is the difference between private credit and public credit?
Private credit and public credit differ significantly in terms of their nature and risk factors.
Private credit typically fills a gap in the market left by traditional financial institutions during credit tightening periods. It includes various forms of lending, such as bridge financing and business lines of credit, often provided by non-bank lenders. Private credit can be secured by various assets, including real estate, business assets, or commercial real estate, and can involve distressed debt or borrowers facing financial challenges.
The risk associated with private credit varies widely, depending on the specific type of lending and the underlying assets, and returns may be higher to compensate for the additional risk.
In contrast, public credit generally involves bonds and other debt instruments that are publicly traded and considered lower risk due to the stability of government and corporate issuers, but often come with lower returns in today’s low-interest-rate environment.
It’s essential to assess the risk and return profile of private credit investments carefully and consider factors such as diversification when evaluating their suitability for your investment portfolio.
What is private equity and how is it different from investing in the stock market?
Private equity involves investing in private businesses through investment firms or funds that pool capital together to acquire ownership in these businesses.
The key difference between private equity and investing in the stock market is that private equity deals are not publicly traded. Instead, private equity firms purchase private businesses, often using a mix of debt and equity, with the intention of enhancing their value over time. This value enhancement can be achieved through various means, such as improving management, implementing new strategies, or expanding the business.
The goal is to increase the business’s profitability, making it more valuable, and eventually selling it at a higher price, thereby generating returns for investors.
Unlike publicly traded stocks, which offer liquidity through easy buying and selling, private equity investments often come with longer lock-up periods, making them less liquid, but they may provide the potential for higher returns.
How can I think like a billionaire and have a billionaire mindset?
Thinking like a billionaire and adopting a billionaire mindset involves shifting the focus from simply increasing income to maximizing one’s balance sheet and assets.
Billionaires often leverage their balance sheets strategically to optimize their financial situation. A key aspect of this mindset is a focus on tax efficiency. Billionaires explore legal avenues to defer taxes, such as utilizing investment vehicles like IRAs or engaging in real estate investments that offer opportunities for tax deferral through mechanisms like cash-out refinancing.
Billionaires understand the importance of preserving and growing their wealth over time, making informed financial decisions, and taking advantage of tax codes to their benefit.
Additionally, billionaires prioritize leveraging the value of their time, seeking experts and partners to help achieve their financial goals rather than trying to do everything themselves. This shift in perspective can be beneficial for individuals looking to make more effective financial decisions and achieve long-term wealth accumulation.
How can I use the tax code to my advantage the way billionaires do?
Billionaires often utilize the tax code to their advantage in several key ways.
One strategy involves investing in real estate, leveraging the benefits of depreciation to defer taxes while generating income. This depreciation allows them to offset taxable income by accounting for the wear and tear on their real estate investments.
Another tactic involves shifting from ordinary income sources, like traditional IRAs and 401(k)s, to capital gains, which are often subject to lower tax rates. This shift can involve exploring various investment opportunities that align with capital gains treatment.
Lastly, billionaires also consider the benefit of the stepped-up basis upon passing away. By doing so, they can pass assets to heirs, who inherit them at their current market value, potentially avoiding capital gains taxes.
Researching and understanding these tax strategies is essential to make the tax code work in your favor and maximize your financial outcomes.
To learn more about investing like a billionaire, check out the resources below!
- CAIS: Intelligence and Insights
- CAIS: Between Now And Success with guest Shannon Larson and host Steve Sanduski
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
Connect With Ben Fraser:
Connect With Jeremy Keil:
- Keil Financial Partners
- LinkedIn: Jeremy Keil
- Facebook: Jeremy Keil
- LinkedIn: Keil Financial Partners
- YouTube: Retirement Revealed
- Book a call with Jeremy
About Our Guest:
Ben Fraser is the Chief Investment Officer at Aspen Funds, where he combines his analytical nature with a passion for delivering outstanding client service and strong returns through out-of-the-box investments. With a professional background that spans over a decade, Ben has become an expert in the field of investment management and has worked for several reputable financial institutions.
Ben is the co-host of the Invest Like a Billionaire podcast, where he joins his father, Robert, co-founder and CFO of Aspen Funds, along with co-founder Jim Maffuccio, to discuss economic trends and best practices for alternative investing.
Results and figures presented within the above links are hypothetical, unaudited and are intended for illustrative purposes only.
Keil Financial Partners assumes no liability or responsibility for any errors, omissions, or other issues with the links and their respective contents. This includes both the website content and any potential bugs, viruses or other technical threats.
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Keil Financial Partners does not provide any tax advice. No information or results from the links should be interpreted as tax advice. Please seek guidance from a qualified tax professional for any and all tax-related matters.
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