The Real Reason Billionaires Keep Money in the Stock Market (It’s Not What You Think)

A few weeks ago, I introduced the first of three major shifts happening in how wealth is built:

The shift from public markets to private markets.

I got a lot of replies asking me to go deeper on this one. So today, I want to unpack it, because once you understand why the ultra-wealthy invest the way they do, it changes how you look at everything.

Let’s start with something that might surprise you.

Why Do Billionaires Keep Money in the Stock Market?

Here’s a question I ask people all the time: Why do you think wealthy families keep money in the stock market?

Most people say, “Because they believe in the U.S. economy.” Or “Because they want the growth.”

That’s part of it. Sure.

But do you want to know the primary reason?

They borrow against it to buy more alternative assets.

Think about that for a second.

If you sell stock, it’s a taxable event. You pay capital gains. But if you borrow against your stock on margin? There’s no tax. You keep the asset compounding, you access the liquidity, and you deploy that liquidity into private deals that generate cash flow at a rate higher than what you’re borrowing at.

That spread? That’s the game. 

Their stocks keep growing at 8-10% on average. Meanwhile, they’re borrowing at, say 4-5% and investing in private deals returning 12-15%. The arbitrage between those two numbers is pure profit – and it all stacks on top of the underlying growth they were already capturing. 

That’s what I call stacking returns, and it’s not unique to the stock market, by the way. I do the same thing with my Whole Life policies – borrow against the cash value, deploy it into deals and let the policy keep growing uninterrupted as if I never touched it. Same principle, different vehicle. 

The wealthy don’t keep money in the stock market because they think it’s the best return on its own. They keep it there because it’s a long-term, appreciating asset they can leverage – a holding tank with compounding utility that funds their access to what actually moves the needle.

Efficient Markets vs. Inefficient Markets

Here’s something I think about a lot: What is the most efficient market in the world?

The stock market.

It’s the most efficient market that exists. Everyone has access to the same information. Algorithms trade a thousand times faster than you can click a button. Quants and AI are competing for every edge.

Read Flash Boys by Michael Lewis if you haven’t. You’ll learn that, as a retail investor, you have no edge in the stock market.

So if you’re going to play in that market, the only smart approach is to invest cheaply in a collection of companies – an index – and bank on the long-term growth of the economy. That’s it. That’s the best you can do.

Now contrast that with inefficient markets.

Private businesses are inefficient. Real estate is inefficient. That’s where the opportunity lives.

Think about it: Why were you able to start your business? Because your market was inefficient. You created value by bringing efficiency to an inefficient space. The more inefficient the market, the more opportunity there is to generate outsized returns.

This is why the wealthiest families I know are always looking for inefficiency. They want to buy businesses and real estate from baby boomers who are retiring – people who aren’t trying to maximize every dollar, who just want to move on. That’s where you get a good price, and also where you create real returns.

The more institutional money flows into an asset class, the more efficient it becomes, and the harder it is to outperform. The less institutional money, the more opportunity.

What the Ultra-Wealthy Actually Invest In

I spend a lot of time studying family office data. I get reports from Goldman Sachs, JP Morgan (which has more billionaire clients than any other bank), UBS, KKR, Apollo – the list goes on.

Some of these reports aggregate data from 200+ family offices. This isn’t theory. This is what the wealthiest people in the world are actually doing with their money.

Here’s what I see:

Private Equity: 25-35% of their portfolio. This is the biggest slice. Private businesses. Not public stocks. Private companies.

Public Equity (Stock Market): 15-30%. Notice this is less than private equity for most family offices.

Real Estate: 10-20%. And we’re not talking about REITs on the stock exchange. We’re talking about direct ownership or LP positions in private deals.

Private Credit: 5-10%. This is the private version of bonds — and the returns are typically 2 to 2.5x better than traditional fixed income, while still being highly collateralized.

Fixed Income (Bonds): 5-10%.

Cash: 5-10%.

The remaining slivers go to cryptocurrency, hedge funds (which are actually trending down), commodities, precious metals, collectibles, and infrastructure.

Add it up and you’ll see: The wealthiest people have over half their net worth in alternative investments. The stock market is the alternative for them. Not the other way around.

Here’s one example that really drives this home.

There’s a group founded here in Austin. It’s a community exclusively for people with $100 million to over $1 billion in net worth.

Out of about 120 members – all centi-millionaires and above – they collectively put just 5% in the stock market.

Five percent.

That’s not because they don’t believe in the U.S. economy. It’s because they’ve figured out that the real wealth creation happens elsewhere – in private deals, in private credit, in real estate, in inefficient markets where they can add value and generate cash flow.

And here’s another thing worth noting: 5% of a nine-figure net worth is still millions of dollars. That’s more than enough to borrow against, maintain liquidity, and keep the leverage engine running. They’re not underweighting the stock market because they’ve abandoned it – they’re right-sizing it. It earns its place in the portfolio, it just doesn’t dominate it. 

The 60/40 Portfolio Myth

One more thing I want to address.

You’ve probably heard that the “safest” portfolio allocation is 60% stocks, 40% bonds. That’s the textbook answer. That’s what most advisors will tell you.

Except a couple years ago, that allocation had one of the worst performances in the last century.

The “safe” portfolio got crushed.

And it’s not just me saying so. The Chief Investment Officer of the largest asset manager in the world – a firm overseeing over $10 trillion – came out and said it plainly: the 60/40 portfolio is dead. When the person responsible for allocating more capital than anyone else on the planet declares an era over, I think it’s worth paying attention.

Concentration to Make Money. Diversification to Keep It.

Here’s the principle I want to leave you with:

Most wealthy people make their money through concentration. They build a business. They go all-in on an opportunity. That’s how they create wealth.

But they grow and protect their wealth through diversification.

Diversification matters because we don’t know what economic season is coming next. It could be a boom. It could be a bust. It could be a recession. We could see inflation spike or deflation take hold.

But if you’re diversified across asset classes – private equity, real estate, private credit, public equities, cash – then part of your portfolio is always performing well, no matter what the environment looks like.

That’s how families build generational wealth. Not by going all-in on the stock market and hoping for the best.

The Takeaway

I’m not anti-stock market. I think it should be part of everyone’s portfolio.

But I am against being over-concentrated in the most efficient market in the world, where you have no edge, competing against algorithms and quants, and calling that a strategy.

The wealthy play a different game. They look for inefficiency. They buy from baby boomers retiring. They invest in private deals where they can negotiate terms and structure downside protection. They borrow against their public holdings to fund their private investments.

And they build portfolios where part of their wealth is always working, in any economic environment.

That’s the shift from public to private markets.

Next week, I’ll dive into another one of these forces. Until then, I’d love to hear what questions this brought up for you.

— Justin

P.S. If you know someone who’s over-allocated in the stock market, forward this to them. No explanation needed – just send it. Next week, I’ll be breaking down another major shift in how wealth is being built right now. You won’t want to miss it.