Most of us dream from time to time about what it would be like to be a billionaire. Jet-setting and having access to endless opportunities and experiences are all part of the lifestyle. And with many of them being self-made — and seemingly all of them invested in the stock market — it only makes sense the rest of us would be tempted to copy their stock picks from time to time.
Before mirroring every investment move your favorite billionaire makes, however, you may want to remind yourself of these key differences between your situation and theirs, because your stock portfolio should be built for you and you alone.
1. Their wealth came from founding — and growing — companies
Forbes‘ most recent list of the world's richest people starts with Elon Musk and goes on to name Jeff Bezos, the Bernard Arnault family, Bill Gates, and Warren Buffett.
There's an obvious common element. Musk, Bezos, and Gates of course founded Tesla, Amazon, and Microsoft, respectively. The Arnaults launched their own fashion brand back in the 80s and then acquired several others under the LVMH Moet Hennessy umbrella. Buffett didn't start any of the companies Berkshire Hathaway now owns, such as Geico, Duracell, and Fruit of the Loom, among many others. But he was responsible for building Berkshire into the conglomerate we know today, steering it through decades of growth and acquisitions that created more value than any of its portfolio organizations could probably have created on their own.
Connect the dots. Although investing in the stock market is the way most people starting with little can parlay a typical household income of around $68,000 per year into a seven-figure nest egg in just one lifetime, nobody ever became a self-made billionaire doing so. The billionaires we keep tabs on certainly didn't!
2. Billionaires don't have to sacrifice today for a better tomorrow
While it's a choice you likely have to make, the mega-wealthy aren't choosing between things like taking a nice vacation and putting more money to work in the market. They're doing both and not giving either a second thought.
This can be frustrating at times for everyday investors earning an average income, particularly in the era of social media, where high-profile billionaires — and even your peers — seem to be living their “best life” while you aren't.
Don't be fooled or discouraged, though. Living a little less rich today will be worth the money saved and invested.
This might help ease your frustration: While the billionaires clearly aren't sweating the cost of what for you would be a dream vacation, your friends, neighbors, co-workers, and peers who seem to be living so lavishly are making their own sacrifices, and potentially living on debt rather than saving enough for retirement. Credit reporting bureau Experian says that as of late last year, the average U.S. consumers' credit card balance is around $5,200. At the same time, a recent survey performed by fintech outfit Sagewell Financial indicates that 40% of U.S. workers have less than $50,000 saved for retirement, while a little over one-fourth of them have less than $10,000 saved.
The point is, while it's a bummer, the sacrifice you're making now allows you to lay a strong foundation that will prove its worth down the road.
3. Billionaires can afford to ride out ill-timed rough patches
Perhaps the biggest difference between you and billionaires is that they're so rich, they don't have to worry about market-wide weakness or even prolonged bear markets. You do as setbacks may take shape at inopportune times.
Consider just the past few weeks. Some stock portfolios that were worth $1,000,000 at the end of last year are now worth only around $750,000 (or less). For a handful of investors, this could mean plans to convert a growth-minded portfolio into holdings serving up $30,000 of dividends per year may have to be adjusted to produce only $24,000 of annual dividend income, or a reduction on the order of $500 per month. It's not the end of the world, but it just might be enough of a difference to prompt someone to postpone a retirement planned for this year.
Billionaires have experienced significant losses too. Jeff Bezos' 49.8 million shares of pre-stock-split Amazon were worth $168 billion at the end of last year, but now, that stake's worth only $115 billion. But even after losing over 30% of his net worth, the difference is Bezos can still sleep just fine, and he should still have plenty of cash at his disposal after selling a few billion dollars of Amazon stock last year.
The one commonality
Though the differences are quite stark, there's one clear commonality between the average small investor and billionaires. That is, they all want to grow their existing portfolios. At a minimum, that growth will have to outpace inflation, but ideally, it will lead to a better lifestyle, less financial stress, and more opportunities to give meaningfully.
And when it comes to the billionaires like Warren Buffett and Ray Dalio who manage diversified portfolios, this is why they're worth watching even if you don't copy every single one of their stock picks for yourself. A particular idea they act on might not make sense for your portfolio. But on the chance they've uncovered something you haven't, though, their investment activities at least merit a few minutes of consideration. If it's not right for you, just move along.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway (B shares), Microsoft, and Tesla. The Motley Fool recommends Experian and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.