Who doesn’t want to be a billionaire? The fortunate few who have achieved billionaire status embody the pinnacle of financial freedom, and we can learn a lot from them about how to best manage and build our wealth.
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But there are certain money moves that, in the opinion of famed financial expert George Kamel, billionaires make that just aren’t suitable for the average person.
In a recent video posted on his YouTube channel, Kamel discussed the seven reasons you shouldn’t be investing like a billionaire, with the key point being they could leave you broke.
Billionaires Invest for Preservation More Than for Growth
Billionaires have unlocked the highest level of wealth status, and as such, they’re generally more concerned with preserving their wealth than they are with making it grow.
“They use complicated tax strategies and estate planning tools and probably have massive teams that help them with all this stuff,” Kamel said, adding that billionaires often put their money in trusts to help protect their wealth for future generations, and may use charitable donations to reduce their tax burdens, while also supporting causes they care about.
Yes, we can and should look into trusts to protect wealth when appropriate, and certainly we should all be donating to charity (if only for the write-offs), but unless you’re extremely wealthy, you likely don’t have a fleet of finance professionals working with you every single day to ensure that you stay that way nor will you be privy to those complicated tax strategies, Kamel mentioned.
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Billionaires Are Focused On Private Equity and/or Venture Capital Deals
Unlike the average American, billionaires have premium access to private deals that exclusively benefit them and/or their business sector(s).
“We’re talking private equity or venture capital,” Kamel said. “Think of private equity as the big leagues for established companies that need a makeover … Private equity firms raise a ton of money, usually from big investors. They buy up companies and they try to make them more valuable by cutting costs, improving operations or changing leadership. Then they sell the company or take it public to cash in on the higher value.”
OK, so this is a lot. We’re talking like calculus-level money moves. The same goes for venture capital, which Kamel described as “‘Shark Tank,’ but for startups.” Essentially, billionaires research young companies that may be onto something big and profitable, and dump money into helping them grow.
“If it tanks, well billionaires can afford to take that hit,” Kamel said. “We can’t. And that’s why it would be far too risky to invest your money like billionaires do.”
And even if you wanted to invest money in either of these ways (venture capital or private equity), you usually don’t even have access to these deals unless you’re already a major wealthy player.
Billionaires Have a Higher Risk Tolerance Than You
The average investor has to implement a certain level of risk in their investments (it’s the nature of the game), but they need to be very careful here. Depending on their age (younger people can generally afford to take more risk), they may even need to be extremely conservative.
Billionaires don’t have to be quite as sensitive when it comes to risk.
“When you’ve got billions, you can stomach high-risk investments like tech startups or hedge funds,” Kamel said.
The average investor just does not have nearly as much room for risk as the wealthiest players do who, as Kamel noted, may borrow heaps of money to maximize returns.
Billionaires Can Absorb Financial Losses That Would Destroy Most of Us
Did your big multimillion-dollar investment just totally tank? If you’re anything less than a billionaire, this could sink you forever. But billionaires can absorb such a loss.
“They can lose millions without it affecting their lifestyle,” Kamel said. Surely, this is not the case for your average investor, or anyone who doesn’t have a yacht-load of money.
Billionaires Get Fat Loans for Cheap
Another important distinction between billionaires and everyone else: They have access to loans (and low rates) that the average investor isn’t privy to.
“They’ve got an endless line up of wealth managers and banks ready to hand them unlimited cash at stupid-low rates whenever they need it,” Kamel said. “For the average person, investments don’t have any spending value until, you know, you sell the investment.”
Billionaires can borrow money and use their investments as collateral to get that money at a low rate. We don’t have this luxury.
Billionaires Have Huge Influence Over the Markets
One of the reasons people emulate the money moves of billionaires when it comes to investing is because billionaires have a ton of influence on the markets. If Warren Buffett, for example, comes out and declares a stock a worthy buy, we could actually see a noticeable shift in the market to favor that stock.
Do you have that kind of influence over the markets? Probably not. So while it’s fine to invest in a company that a billionaire is backing, it’s perilously foolish to think that you can actually move such a massive needle without the requisite massive wealth.
Billionaires Have Far Less Pressure To Diversify
There’s (hopefully) not a single financial expert on the planet who doesn’t advocate for diversifying your portfolio to lower your risk and spread your wealth. But they’re generally not advising billionaires. Millionaires and all wealth tiers below them must diversify. But billionaires? Not the case.
“Billionaires can afford to concentrate their efforts on certain industries or companies because they have other layers of wealth to fall back on,” Kamel said. “But for the average investor like you and me, diversification is the key.”
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This article originally appeared on GOBankingRates.com: 7 Reasons You Shouldn’t Be Investing Like a Billionaire, According to George Kamel
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
