Investing For High Net Worth Individuals

With the stock market hitting new all-time highs you may be hearing the term “High Net Worth Individual” a lot recently, and wondering exactly what that means. 

The term High Net Worth Individual – or HNWI – is a label used by financial institutions to refer to folks whose liquid assets (funds that can be quickly and easily converted to cash) is between the $500,000 and $1,000,000. 

The population of HNWI in Canada is growing, and banks and investment firms are only too happy to offer these investors special services and perks not available to more mainstream investors. Of course, as noted in our best financial advisors in Canada article, the vast majority of these advisors are really pretty bad options.

If you’ve recently obtained high net worth status, make sure and do your homework before handing money over to financial institutions. I can guarantee you that you will be a target for their marketing teams going forward.

Check out my take below on some of the more relevant considerations for folks that are approaching high net worth individual levels of assets, and those that have recently hit that mark.

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 my 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 my favourite. You can read the full shoutout 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 or commodities. 

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.

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

High Net Worth Investing After Retirement

Congratulations on retiring with a big nest egg! My 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, I know there are plenty of professional money managers out there ready to help you manage your portfolio. After seeing just how many truly bad financial planners there are there in Canada, I recommend Objective Financial Planners out of Toronto.

Jason Heath is the founder and you can Google his name to see how well trusted he is all over Canada. The also have a lot of experience doing online financial planning so you can get help wherever you live and never have to change out of your PJs!

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, I don’t recommend hedge funds to main street investors, nor do I 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.

Working with a Financial Planner as a High Net Worth Individual

For high net worth individuals in Canada, the role of a financial planner extends far beyond the realm of basic asset management. These experts offer nuanced, all-encompassing services that address the multifaceted aspects of wealth.

This can include devising sophisticated estate plans that guarantee a seamless transition of assets to future generations, to implementing advanced tax strategies aimed at significantly reducing fiscal burdens. 

A financial planner can customize your investment portfolio to align perfectly with your unique risk appetite and financial aspirations, ensuring each investment decision is meticulously calibrated for optimal performance.

Additionally, financial planners provide invaluable guidance on charitable giving, enabling high net worth individuals to support causes dear to them in a manner that is both impactful and tax-efficient. This strategic philanthropy not only furthers social good but also enhances the individual’s legacy, intertwining their wealth with broader societal benefits. 

For those with interests and assets that span across borders, the planner’s role becomes even more critical. They offer expert advice on managing international investments and navigating the complex web of global tax laws, ensuring that your wealth is not only safeguarded but also positioned for growth in the international arena.

By tapping into the expertise of a financial planner, high net worth individuals in Canada can unlock the full potential of their wealth, leveraging it not just for personal gain but as a powerful tool for generational wealth transfer, philanthropic endeavors, and global investment opportunities.

A financial planner can help HNWIs ensure that their wealth is not merely preserved, but also serves as a dynamic force for positive impact, both now and in the future.

High Net Worth Investing For Canadians – FAQ

High Net Worth Investing in Canada: Conclusion

Achieving HNWI status doesn’t flip the investing script – fundamentals don’t change just because you hit a certain number – whether your net worth is a cool grand or a hefty million. Sticking to a diversified spread, think ETF portfolios, for the long haul remains your best bet for building wealth.

There are, however, a few ways for high net worth individuals to fine-tune their approach for that extra edge: Before you hit those golden retirement years, make sure you have an RRSP and TFSA withdrawal plan ready to minimize taxes and max out your OAS.

Once again, it bears repeating that banks and insurance companies really love to soak Canadian high net worth individuals for as much as they can. By charging seemingly small fees (2.5% doesn’t sound like a lot right?) they can wreak havoc on long-term returns.

Finding a wealth management company that doesn’t charge a commission percentage – but rather a set transparent fee – is even more for HNWIs because 2%+ of their portfolio can be a pretty massive chunk of money to give up each year!