How the Upper Middle Class Approaches Investing
Investing is key to protecting and growing wealth, which is why every financial advisor swears by it. So, no matter what income tier you fall in, you need to be investing as aggressively as you can and as early as possible.
Trending Now: How I Made $1,000 a Month in Dividend Stocks
Check Out: 4 Genius Things All Wealthy People Do With Their Money
But you may be wondering how to invest. Learning how the upper middle class does it can be a helpful blueprint. Here’s how they approach this crucial process that anyone who wants to significantly build wealth must embark upon.
Diversify Your Investments
High earners don’t just depend on their income to make their fortunes, they rely on investments and keep a diversified portfolio to hedge against risk.
“A significant amount of many upper middle class members’ wealth is often related to their job,” said Justin Zacks, vice president of strategy at Moomoo Technologies Inc.
“Not only the income they receive, but also in terms of ownership, whether that is company restricted stock and options, ownership of a small business or equity in a law or medical partnership,” he said. “It is important to make other investments that are not directly related to your job to help make sure you will be financially secure if your business area is subject to a downturn.”
See More: 10 Valuable Stocks That Could Be the Next Apple or Amazon
Consistent Investing
And wealthy people don’t just invest once and then drop it. They do it consistently.
“Regular, consistent investing, also known as dollar-cost averaging, can be more effective than attempting to time the market,” said Jay Avigdor, president and CEO at Velocity Capital Group. “By investing a fixed amount regularly, you purchase more shares when prices are low and fewer when prices are high, potentially reducing the average cost per share over time.”
Investing To Reduce Taxable Income
Another trick the upper middle class use when approaching investing, is as a way to lessen their tax burdens.
“They use investing as a way to reduce taxable income, as they place their investments in assets,” said Aaron Cirksena, CEO of MDRN Capital. “Retirement accounts [such as] 401(k) and IRA can offer tax advantages.”
Tackling High-Interest Debt to Better Invest
High-interest debt will destroy your financial health if you don’t pay it down right away, like upper middle class investors do.
“They pay off high-interest debt as an initial way of investing for the future,” Cirksena said. “Generally, if the interest rate on any debt is greater than 6%, it is better to invest your money in paying off that debt. Basically if the interest rates exceed the potential returns from your investments, then pay off the debt instead.”
Invest in Assets, Not Status
Once you start building wealth, you may be more tempted than ever to throw money at things that show the world you’ve made it. Resist this urge, just like the upper middle class tend to.
“Rather than spending money on name brand clothing, new cars or anything that reflects social status, they invest their money in stocks, real estate, business, etcetera. that allow them to accumulate wealth over time,” Cirksena said.
Generate Passive Income
To bulk up their wealth, the upper middle class turn to passive income generated from long-term investments.
“Take a lesson from the rich, many of whom have lower effective tax rates than most members of the upper middle class,” Zacks said. “Many wealthy individuals focus on generating passive income from long-term investments, dividends and rental income which are often taxed at lower rates than the earned income you earn from wages.”
Explore Investments Available Only to ‘Accredited Investors’
“Investors that meet certain net worth or income tests can be classified as ‘accredited investors.'” Zacks said. “These investors can participate in certain private investments such as real estate and private debt that are not available to the general public. These investments may offer higher returns and additional diversification but can also be risky and illiquid.
Investing in a Good Financial Advisor (Even If It’s Expensive)
Upper middle class investors typically don’t go it alone. They enlist a financial advisor who will guide and oversee their investments.
“They are OK with spending more money initially on a solid financial advisor rather than just the first cold call they get or someone offering a low rate,” Cirksena said.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: How the Upper Middle Class Approaches Investing
