High Net Worth Investing In Canada 2023

A High Net Worth Individual (HNWI) is a specific label that financial institutions use to refer to people or households that hold above a certain threshold of liquid assets (funds that can be immediately converted to cash), minus their liabilities.

The threshold for being classified as a HNWI is typically $1 Million dollars net liquid assets, but some banks like TD and investment firms like Mackenzie Investments do have a lower, $500,000 net liquid assets threshold.

A HNWI can enjoy special services and perks compared to regular joe-schmo, main street investors (like me). Examples of special services include: separately managed investment accounts instead of mutual funds, personal tax planning, and personalized estate planning. 

Perks and benefits include: reduced fees, special rates, and VIP access to special events.

This article outlines the guiding principle for high net worth investing – as well as portfolio management options and specific strategies that high net worth individuals can use to guide their investment decisions.  

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High Net Worth Investing Strategies

The best high net worth investing strategy, like any investing strategy, depends on your goals. If you’re a HNWI below retirement age, your goal is likely the same as any other investor: to maximize your returns over a long time horizon in order to secure a comfortable (or in your case, possibly luxurious?) retirement. 

Being a high net worth individual, your retirement is likely quite secure already – but you don’t become a high net worth individual by squandering the power of your money. Many HNWl’s want to use that money to generate high returns and increase their wealth.

High Net Worth Investing: Longterm, Diversified Investment

The optimal strategy for long term wealth generation is, in principle, the same for everyone: Assemble a basket of diversified investments at low fees and hold them for a long time. So if long term wealth generation is the goal, then our advice for high net worth individuals is the same as for any other passive investor: pursue a disciplined long-term investment strategy such as dividend investing or index investing.

These approaches ignore market noise and avoid short-term speculation, so you can play the long game and grow your assets more safely. Diversify your portfolio across industries, markets, geopolitical boundaries, and asset classes, rebalance once in a while, and hold on for the long haul.

Because HNWI portfolios are so large, it’s even more important to minimize fees. It can be worth thousands to chase after a few basis points in management fee savings. If you want to keep managing your own investments or use a robo-advisor service, pay even more attention to fund management fees. Even the tiniest percentage fee difference can translate into substantial savings.

In our latest Best Canadian Online Brokers Comparison, Qtrade came out on top, both in terms of its rock-bottom fees and its world class customer service. For robo-advisors, WealthSimple is our favourite. You can read the full shootout for Best Robo Advisors in Canada.

High Net Worth Investing: Maximize Buying Power

Although the fundamental approach is the same for HNWI and everyone else, one small tweak to HNWI could be to keep more cash on the sidelines. This isn’t out of fear of being over invested, but rather to keep the buying power handy to take advantage of opportunities such as sudden market drops or business opportunities.

As an example, I missed a good chunk of the 2020 lockdown market crash because it took time to liquidate some assets and transfer between my accounts. If I’d had more cash on hand, I could have bought more aggressively into the market dip. I didn’t have much cash ready and missed much of the roaring growth after the March 2020 market crash.

While a large portion of your investments should be in equities, I recommend keeping 15% to 30% in cash so you can jump on chances to buy aggressively into a market crash or other opportunities. This is the best approach for building high net worth asset allocation over time.

High Net Worth Investing Strategies for Different Goals

Having a high net worth gives you the financial freedom and security to try different things and have different goals. Say a big part of your portfolio is already dedicated to long term wealth generation, then you can afford to invest the rest of your wealth in fun and creative ways.

If you want more excitement in your portfolio and are willing to take on more risk, you can dedicate a portion to more speculative investments like collectibles, commodities, or cryptocurrencies. 

Do you have an interest in vintage sports cards, comic books, or art? Maybe those interests can be channeled into a side trading hobby. Have fun and make profit at the same time. See our guide on Collectible Investing In Canada for more ideas.

How about commodities? If you are interested in analyzing economics and predicting global resource supply and demand, you can try your hand at commodities speculation. See our guide on How to Invest in Commodities in Canada for more details.

Bitcoin and other cryptocurrencies have been making headlines over the past couple years. If you’d like to try that wild rollercoaster, you can allocate a portion of your investments to crypto currencies. You can invest in big, more established coins, gamble on obscure, joke alt-coins, or both. To get started, check out our Bitcoin in Canada Guide.

Everything is best enjoyed in moderation, even fun. Please only use a small portion of your overall wealth for speculative investments like collectibles, commodities, and cryptocurrencies.

High Net Worth Investing After Retirement

Congratulations on retiring with a big nest egg! Our typical recommendation for retirees is to gradually transition their equity asset allocation to safer investments like bonds, GICs, and high interest saving accounts.

The same recommendation applies to high net worth individuals too but only up to the point where the safe portion of the portfolio guarantees a comfortable retirement lifestyle. That is, if the low risk bonds in your portfolio already give you enough interest income to sustain the retirement you want, then there is no need to transition more of your equity holdings into safer fixed income investments. Leave the equity assets to grow so you can maximize your estate, which can be left to heirs or to charity.

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High Net Worth Portfolio Management

This article focused mostly on DIY investment styles and strategies, but of course, we know there are plenty of professional money managers out there ready to help you manage your portfolio. If you want to work with a bank, definitely take advantage of discounts for HNWIs and the other perks or services offered to get your money’s worth.

There is also no shortage of hedge funds out there that would be happy to sign up a high net worth client. Their promises of high returns can be very tantalizing. However, we don’t recommend hedge funds to main street investors, nor do we recommend them to high net worth investors. Their high fees simply cannot be justified.

It’s incredible how many hedge funds can get away with outrageous management fees for weak performance not even close to returns from simple index funds. Sure, the very top hedge funds can outperform the overall market index; some funds even do so with some consistency. But hindsight is twenty-twenty.

The chances of finding the lucky fund that consistently outperforms the market is very low. In the meanwhile, it’s not worth the high fees to search for that rare, consistently high-performing hedge fund.

That’s why we recommend HNWIs who are looking for some personal advice and assistance to stick with a financial advisor who specializes in wealth management solutions. Many of the top firms in Canada only work with individuals over a certain net worth, which makes them particularly knowledgeable about strategies for HNWIs. 

Financial advisors can help with more than portfolio management, they can help with long-term financial planning and decision making. While their fees are higher than robo advisors and DIY brokerages, some high net worth individuals find them to be worth it. They appreciate the ability to consult an expert about any major financial decision they may be considering.

High Net Worth Investing For Canadians – FAQ

High Net Worth Investing in Canada: Conclusion

Just because you’re a high net worth individual, that doesn’t mean the rules of investing suddenly change. The same basic wealth generation principles apply whether you’re investing $1,000 or $1 Million. Investing mostly in well-diversified assets like ETF portfolios for the long-term still makes the most sense.

However, high net worth individuals can do a couple of things to optimize their investments:

1. Before you reach retirement age, keep a sizable amount in cash so that you can take advantage of market crashes and investment opportunities.
2. Once you’ve retired, only transition enough of your portfolio to low risk, fixed income investments to sustain the lifestyle you want. Any more than that would waste the growth potential of such a large nest egg.

Finally, if you feel like having some fun, let yourself dabble in riskier investments like collectibles, crypto currencies, or other speculative instruments. Just be sure to leave the main portion of your portfolio to quietly grow in less volatile markets!