9 Ways Billionaires Invest
1. Expanding their Businesses
- Billionaires invest most of their money in building their businesses. For example, Elon Musk invested all of his money from PayPal to fund his three new startups called Tesla, Solar City, and SpaceX. He believed in a vision and provided the capital for those businesses to thrive. He continues to invest back into his business and enhance the electric car, solar, and space industries.
2. Angel Investing
- Mark Cuban the owner of the Dallas Mavericks NBA team and popular shark on ABC’s Shark Tank, invests in an abundance of entrepreneurs.
- Angels are wealthy and willing to invest hundreds of thousands of dollars in your business in return for a piece of the action.
- Angel investors give you money. You sell them equity in the company, filing the investment raise with the SEC.
- Angel investments commonly run around $600,000. Most investments rounds also involve multiple investors, thanks to the gatherings of angel groups.
- Generally, the angels need to meet the Securities Exchange Commission's (SEC) definition of accredited investors.
- They each need to have a net worth of at least $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse).
- They own multiple properties (It’s mostly in the commercial space) or own companies that develop large real estate projects like skyscrapers. Some of these entrepreneurs are: Wang Jianlin, Lee Shau Kee, Peter Woo, Stephen Ross, and David & Simon Reuben.
- Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called “equities.”
- Why Do People Buy Stocks? Investors buy stocks for various reasons. Here are some of them: Capital appreciation, which occurs when a stock rises in price
- Dividend payments, which come when the company distributes some of its earnings to stockholders
- Ability to vote shares and influence the company
5. Government Bonds (Triple A Bonds)
- A bond is a debt security, similar to an IOU.
- Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.
- When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it "matures," or comes due after a set period of time.
- AAA is the highest possible rating assigned to an issuer's bonds by credit rating agencies.
- AAA-rated bond has an exceptional degree of creditworthiness because the issue can easily meet its financial commitments.
- The ratings agencies Standard & Poor's (S&P) and Fitch Ratings use the AAA to identify bonds with the highest credit quality, while Moody's uses AAA is the top credit rating.
6. Index Funds
- An “index fund” is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index.
- The S&P 500 Index, the Russell 2000 Index, and the Wilshire 5000 Total Market Index are just a few examples of market indexes that index funds may seek to track.
- A market index measures the performance of a “basket” of securities (like stocks or bonds), which is meant to represent a sector of a stock market, or of an economy.
- You cannot invest directly in a market index, but because index funds track a market index they provide an indirect investment option.
- Commodity futures contracts are an agreement to buy or sell a specific quantity of a commodity at a specified price on a particular date in the future.
- Metals, grains, and other food, as well as financial instruments, including U.S. and foreign currencies, are traded in the futures market.
- With limited exceptions, trading in futures contracts must be executed on the floor of a commodity exchange.
- Exchange-traded commodity futures and options provide traders with contracts of a set unit size, a fixed expiration date, and centralized clearing.
- In centralized clearing, a clearing corporation acts as a single counterparty to every transaction and guarantees the completion and credit worthiness of all transactions.
- A royalty is a payment to an owner for the ongoing use of their asset or property, such as patents, copyrighted works, franchises, or natural resources.
- A royalty payment is made to the legal owner of the property, patent, copyrighted work, or franchise by licensees or franchisees who wish to make use of it for the purposes of generating revenue or other such desirable activities.
9. Mutual Funds
- A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
- The combined holdings of the mutual fund are known as its portfolio.
- Investors buy shares in mutual funds.
- Each share represents an investor’s part ownership in the fund and the income it generates.