Untapped Potential: Investment Strategies of the Wealthy
Most retail investors build their retirement portfolios around publicly traded stocks and bonds. Yet, those strategies tell only a fraction of the story. High-net-worth families and institutional investors often employ vastly different tools to manage their wealth.
When individuals buy a bond, stock, or exchange-traded fund (ETF), they are essentially investing in, or lending money to, a company that is listed on a public exchange. Currently, there are around 3,500 publicly traded companies in the United States with over $100 million in annual revenue. However, there are approximately 18,000 companies that aren’t publicly traded, but still generate over $100 million annually. Well-known examples include Publix, Burger King, Fidelity Investments, SpaceX, and OpenAI.
Investing in these non-publicly traded companies presents unique opportunities to expand a portfolio beyond the traditional public markets.
Private Equity Opportunities
Investing in private companies doesn’t always require direct ownership. Private equity funds offer an alternative avenue for participation. These funds pool capital from investors and use it to acquire stakes in private companies, often with the aim of increasing their value and eventually selling them for a profit.
According to investment data from Preqin, the global private equity index returned an annualized 10.5% since the end of 2000, while a global public equity portfolio returned 7% in the same period. This represents a 3.5 percentage-point difference in average annual returns. A key factor in this outperformance is the valuation of private companies compared with their public counterparts. As of 2025, investors in the S&P 500 are effectively paying almost 28 times earnings. Private equity funds, on the other hand, may invest in companies at valuations of just six to 15 times earnings.
Previously, access to private equity funds was restricted to ultra-wealthy families, institutions, and endowment funds. However, today, these strategies are available to accredited investors as well. An accredited investor, either individually or with a spouse, must have a net worth of at least $1 million, excluding their primary residence.
The Allure of Private Credit
While retail investors often use bonds or bond funds to diversify their holdings, private credit has emerged as a compelling alternative. This investment class has provided the best income performance over the past two decades. When private companies need to raise capital, they often borrow from private credit funds, and these loans typically come with higher interest rates than those associated with investment-grade bonds. Banks traditionally aren’t the primary lenders for these types of loans.
These short-term loans provide companies with funds to enhance profitability, and investors reap the benefits. While investment-grade bonds might yield 4% to 5%, private credit funds can yield around 10%. Moreover, private credit funds have demonstrated volatility akin to investment-grade bonds and fewer defaults than high-yield bonds, making them an attractive option.
Formerly the domain of the ultra-wealthy, private credit funds are now accessible to accredited investors. Experienced affluent investors employ instruments like bank notes, a form of private credit, to outperform the stock market during periods of appreciation and minimize losses when the market declines. Even if individual stocks are hard to predict, bank notes linked to market indexes provide a way to double returns with reduced risk.
The Tax Advantages of Private Placement Life Insurance (PPLI)
One of the challenges that comes with substantial investment profits is taxation. Therefore, many high-net-worth investors look for ways to minimize the impact of taxes on their returns. One strategy they often utilize is private placement life insurance (PPLI).
Under IRS Section 7702, all realized gains and income within a life insurance policy are tax-free. Policyholders can take tax-free withdrawals and loans from the contract, and beneficiaries receive the proceeds free of income tax upon the insured’s death.
Wealthy investors don’t purchase traditional “off-the-shelf” life insurance policies, which typically yield 4% to 5% annually. Instead, they use customized PPLI contracts that allow them to invest in a range of alternative assets like private equity, private credit, and structured notes with the potential for high returns. Because the policy is classified as life insurance, the gains are not taxed.
A $5 million investment, growing at 8% over 20 years, would become about $12.5 million. However, when held inside a PPLI, the same investment could grow to approximately $17.5 million. Previously, a $20 million investment was needed to own a PPLI policy, but today, investors with as little as $2 million can take advantage of this tax-advantaged strategy.
Disclaimer: This article was written by a contributing advisor, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA. The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way. Singer Wealth Advisors is an SEC registered investment advisory firm. Registration with the SEC does not imply a certain level of skill or training. SWA is not a tax professional. Discuss with your financial/tax professionals before investing. Investing involves risk. Past performance does not guarantee future results. Material provided for informational purposes only.
