Investing with a high net worth isn’t the same as someone with an average salary. For one, you’re more likely to use up your RRSP or TFSA contribution limits each year, which means you will be investing beyond tax advantaged accounts and paying capital gains. Your investment goals may also be different. Instead of focusing exclusively on your retirement, you may be concerned with taking care of your broader family’s financial goals, including your children’s inheritance, philanthropic goals, and maintaining the lifestyle you’ve grown accustomed to, whatever happens in the broader economy.
Who Counts as High Net Worth?
In industry terms, a high net worth individual is anyone with at least $1 million of net liquid assets, not including RRSPs and RESPs and principal residences. These individuals can qualify for professional portfolio management – it no longer makes sense to rely on robo-advisors at that point, as there are many other opportunities available that others can’t access.
What Do the Wealthy Include in Their Portfolios?
One of the main goals you should have if you have a high net worth is protecting your portfolio – and your lifestyle. Some of the things you find in their portfolio aren’t as common with average investors:
#1 Real Estate
Real estate should feature prominently in your portfolio, though it’s easy to become over-exposed. Real estate allows you to build equity for future ventures, generate passive income through rentals, and tap into a number of tax benefits that come with property ownership. Though some competitive markets can go through big price changes over the years as markets heat up and cool down, it’s also a relatively stable investment.
#2 Hedge Funds
Hedge funds are risky business, but it’s all part of how high net worth investors balance high risk with defensive assets like gold and real estate. With a hedge fund, limited to accredited investors, your money is pooled and placed to make positive returns. They will use strategies such as leverage (borrowing to increase exposure and risk), short-selling, and other moves that mutual funds generally avoid.
#3 Gold and Commodities
Gold investments are better than cash if protecting your wealth is what you’re worried about. Investing in gold is a way to protect yourself from inflation. The slow erosion of your wealth when you keep it in cash is a risk in its own right, and one that you shouldn’t ignore.
As a defensive asset, gold clearly beats inflation over long periods of time and it achieves the kind of security in your portfolio that equities never can.
If you want to know how to invest in gold, it’s easy to learn more and find bullion at the right price point. Go online and compare gold investments. Always keep an eye on spot prices to make sure you’re getting the right deal.
#4 Venture Capital
One of the riskier places to put your money is in venture capital, the funds required to start up a business or expand. Average investors can do things like put money into crowdfunding and unique funds, but as a high net worth individual you can become accredited and put your money directly into a company.
These four assets could be sorted into two categories: defensive and high-risk. Whereas mutual funds cut through the middle, you can capitalize on opportunities and still protect your wealth by investing in real estate, gold, hedge funds, and venture capital.