Do you hold more cash than the average person? Let's explore strategies for maximizing wealth specifically tailored for “rich” individuals or accredited investors. I will break down an ideal guideline across your checking, savings, and emergency funds, while also providing insights on enhancing returns from other investment avenues.
Typically, individuals inclined towards saving fall into two categories: liquid savers, representing the everyday person, and long-term savers, characterizing the “rich”. Liquid savers prefer readily available funds, often held in checking, savings, high-yield (HY), or certificates of deposit (CDs) accounts. In contrast, long-term savers recognize that keeping cash in the bank is a depreciating asset. They maintain minimal account balances and seek tax-advantaged options to grow their savings, investing above the current inflation rate.
How much should you maintain in your liquid accounts? A useful guideline is to have twice the average monthly spending in your checking, an additional month's spending in your savings, and for those with emergency funds, six months of income in a high-yield savings account. While CDs may not be as favorable as HY savings accounts, a potential shift into CDs could be considered if the Federal Reserve decreases interest rates.
Assuming contributions to company-sponsored retirement accounts, Health Savings Accounts (HSAs), and Roth's are maximized, attention should shift to after-tax accounts, preferably those with tax advantages. Insurance-based options, such as annuities or universal life insurance, present themselves, but eligibility is contingent on health qualifications.
For accredited investors seeking alternative options, exploring Regulation D offerings is advisable. These private placements adhere to FINRA guidelines, governing solicitation, issuance, and fundraising limits. Unregistered and non-public, these securities, like stocks or promissory notes, diversify portfolios beyond market conditions. Due diligence is crucial, requiring a longer process compared to registered securities. Tax implications vary by investment type and merit consultation with a tax professional. An example is Yrefy, a promissory note offering up to 10.25% on a 5-year fixed-income product.*
Engaging with a knowledgeable investment advisor who understands your goals is integral in adopting a wealth-building strategy inline with “rich” individuals.
1. Yrefy Fact Sheet