When it comes to making money, there are certainly investment tricks that wealthy people use to ensure that they amass great fortunes. Not everyone is aware of these investment strategies, or able to execute them correctly. Here is a look at six money secrets that wealthy people know about.
1. Cash Flow is Crucial
If you are looking for somewhere to invest your hard earned earnings, you may want to check out master limited partnerships. These are extremely popular among high earners, due to their strong yields, easy cash flow options and limited tax burdens. MLPs are not one hit wonders or Ponzi schemes. They provide high returns, and the top MLPs have beaten the S&P 500 average on a 1, 5 and 10 year scale.
2. Invest in GRATs
GRATs, or grantor retained annuity trusts, are very popular among people who have gotten rich through the success of their start up companies. These trusts avoid hefty tax penalties, are useful for keeping aside hard to value assets, and allow you to make changes to the trust’s terms if you fear an audit.
3. Create a Corporation
Many actors, singers and reality stars end up creating corporations in order to better manage the money they are earning. Given that these individuals have to pay so much money to agents, managers and other advisers, they end up running into tax issues. By instructing their employees to pay their corporation instead of them directly, it is easier to then pay their managers/advisers and emerge with a taxable income.
4. Reinsurance
Since 2011, there have been many reports of hedge funds creating reinsurance companies in Bermuda. Money is sent through these companies, which ensures that the personal income taxes are greatly reduced. This process allows them to avoid the near 40% income tax and the 20% long term capital gains tax.
5. Find Stable Stocks
Understanding money and markets is no easy feat. Instead of buying stocks with the mentality that you will sell them within a month or two, it is better to buy some stock knowing you will never sell it. When some of the richest investors in the world share their investment secrets, many talk about how they owned certain stock for 20, 30 or 40 years and never thought about selling it. Of course, you must choose the right stock to do this with, but holding onto stock for a long period of time provides the basis for stable investments.
6. Place Best Investments in Roth IRAs
If you have any investments that have a high potential for growth, they should be placed in Roth IRAs. When they are in a Roth IRA, they will be tax free. If you withdraw them after the age of 59, you may never have to pay taxes on these investments.
Some of these money secrets only apply to excessively wealthy individuals who have money to start with. Regardless, if you learn from each of these processes, you will have a better understanding of how the wealthiest individuals amass, manage, and improve on their vast fortunes.