Why do millionaires invest 30% of their wealth in real estate and other alternative investments? Doesn’t conventional investing wisdom advise us to stick to stocks? These questions matter because if you’re making $300,000 or more, taxes are probably eating more of your money than you’d like.
In today’s article, I’ll break down how the wealthy allocate their money, why real estate plays such a big role, and how they do it without becoming a landlord.
Tax-Efficient Investing Protects More of Your Wealth
Most high-income earners put their money in stocks and bonds because it feels simple and “responsible.” It’s what you’re taught to do. You buy ETFs, wait for the market to go up, and sell your shares. You also might notice a problem: your capital gains are taxed heavily and your profit doesn’t create much cash flow.
Early in the 2000s, when I worked at a software company called WebMethods, the IPO made all of us feel like gazillionaires. When I finally sold some of the stock six months later, I handed the money to a financial advisor at Morgan Stanley, who got paid no matter what the market did. I, on the other hand, paid capital gains taxes and received almost no cash flow in return.
So instead, I started looking for assets that:
- Produce passive income
- Offer tax benefits
- Grow in value
- Reduce portfolio volatility
Real Estate Creates Income, Appreciation, and Major Tax Advantages
Millionaires invest 15–25% of their wealth in real estate because it does what the stock market can’t. Real estate creates passive income, appreciates steadily, and comes with tax advantages that are almost unmatched.
But it’s important to understand how they invest. They’re not buying a bunch of single-family rentals. They don’t want to fix toilets, handle tenant calls, or fight over Airbnb regulations. They’re also not pouring their money into REITs (Real Estate Investment Trusts). Even though REITs involve real estate, they behave like stocks and don’t deliver the same tax benefits.
Instead, the wealthy invest as limited partners (LPs) in large commercial real estate projects like:
- Multifamily apartment buildings
- Mobile home parks
- Light industrial spaces
These deals are called syndications. In a syndication, the investors (limited partners) put in the money, and the operators (general partners) do all the work—finding deals, managing the property, handling tenants, and executing the business plan.
As a passive investor (the limited partner), you typically receive:
- Cash flow distributions
- A share of property appreciation
- Extraordinary tax benefits (like depreciation)
- Freedom from day-to-day operations
A Strategic Portfolio Mix Builds Long-Term Wealth
Millionaires don’t invest randomly. They follow a structure that protects their wealth, reduces taxes, and increases income. The allocation most wealthy people follow looks something like this:
- 30% in stocks
- 15–25% in real estate
- 15–25% in private equity
- 10–20% in bonds
- 5–10% in cash
- 5–15% in alternative assets (crypto, oil and gas, precious metals)
Real estate is one of the largest categories because it produces steady results. Private equity offers long-term growth. Stocks provide liquidity and exposure to the market. Cash gives flexibility. Alternatives add diversification.
When you compare this to the average investor’s portfolio—60% stocks, 40% bonds—you can see why most people never break out of the rat race. Their portfolios simply aren’t designed for wealth.
If you want to begin shifting your allocation, start by asking yourself this question: How should my portfolio be allocated based on my goals? From there, you can make small moves each year—redirecting part of your investments into real estate or private equity until your portfolio starts to look more like what the wealthy do.
Building Forward With Smarter Wealth Decisions
Millionaires invest differently because they think about taxes, income, and long-term stability in a way most people don’t. They put about 30% of their wealth into real estate because it gives them benefits the stock market can’t match.
This all connects back to the opening question: why don’t the wealthy only invest in stocks and bonds? Because they want steady cash flow, tax advantages, and real assets that grow regardless of market swings.
Look at your own allocation. Does it reflect where you want to be five or ten years from now? Adjust one piece at a time. Move steadily toward the strategies used by people who have already built the wealth you want.
If you want to learn more about passive investing in syndications, go to NighthawkEquity.com and check out the introductory course.