The 5 Favorite Investments of Young Multimillionaires

Many of us have wondered where the richest Americans like to invest their money. Overall, stocks are the most popular investment. But recent research has found that even though it's highly effective, investing in stocks isn't nearly as popular among young multimillionaires.

Bank of America Private Bank surveyed Americans with at least $3 million in investable assets earlier this year. As part of its study, it asked them which investments offered the greatest growth opportunities. Below, you'll see the top five choices among young multimillionaires from 21 to 43.

1. Real estate investments

The No. 1 choice for young multimillionaires is real estate, with 31% considering it one of the best growth opportunities.

Traditional real estate investing is much more accessible when you already have a large amount of money -- or when you have connections who do. This is a good time to mention that Bank of America's study found that only 25% of respondents were self-made. Three-quarters got a helping hand with those millions.

But there are other ways to invest in real estate. Real estate investment trusts (REITs) allow investors to buy shares in companies that own income-producing properties. Shares can be bought and sold through brokerage accounts, including individual retirement accounts (IRAs) that help you save on taxes.

2. Crypto/digital assets

There's a clear generational gap when it comes to crypto. Young multimillionaires are big on it, with 28% believing it has great growth potential. It also makes up 14% of their portfolios, on average.

Only 4% of multimillionaires 44 and older believe in crypto's growth potential. Among this group, crypto makes up 1% of their portfolios.

Crypto is a controversial subject, but there's no debate that it's highly volatile. If you decide to invest in it, only spend what you can afford to lose, and don't put more than 5% to 10% of your portfolio in it.

3. Private equity

Just over a quarter (26%) of young multimillionaires say that private equity is a great growth opportunity. Private equity involves purchasing shares of privately held businesses. High-net-worth investors who are interested typically invest their money through private equity funds.

Are ordinary investors missing out? Not necessarily. Private equity is risky, and there's no guarantee it will outperform the market.

There can also be hefty fees involved. Private equity funds often use a "2 and 20" fee structure -- a 2% management fee and a 20% cut of any profits. Investing in an S&P 500 index fund may not be nearly as exciting, but it's a lot cheaper. Many index funds charge less than 0.1%.

4. Personal company/brand

Young multimillionaires see the value of investing in themselves and their own businesses, as 24% said it's a great growth opportunity. Only 6% of older multimillionaires said the same.

This often gets overlooked when talking about investments, but it's potentially one of the most profitable investments you can make. If you can build a successful business and increase your income, it can have a huge impact on your finances.

However, launching a business (or a personal brand) is challenging, and it's a high-risk, high-reward investment. It could pay off in a big way, or it might not pay off at all.

5. Direct investment into companies

Rounding out the top five is investing directly into companies, and 22% of young multimillionaires believe this is one of the best growth opportunities. It's similar to private equity. But instead of investing through a private equity fund, you invest in a private company yourself.

Directly investing in companies is another high-risk, high-reward venture. The best-case scenario is that you're an early investor in an extremely successful business. 

The worst case is that the business fails, which is fairly common. Nearly half (48%) of businesses launched in 2018 had failed by 2023, according to the U.S. Bureau of Labor Statistics.

Stick to simple, proven investments

It might seem like a good idea to follow the same investment strategies as wealthy Americans. Keep a few things in mind:

• Most of those investments are risky and/or volatile. They may have high growth potential, but they also have high loss potential.
• Multimillionaires can afford to take more risks than the average American, especially since many of them come from wealthy families.
• Stocks are still the largest part of multimillionaires' actual portfolios, despite what they may think are the best growth investments.

If you want to dabble in alternative investments, such as REITs or crypto, that's up to you. But don't neglect stocks, either. They're one of the most historically proven investments. 

The stock market has averaged a return of about 10% per year over the last 50 years. It's also easy to invest in stocks. You can get great returns from them without all the risk of more "exciting" investments.