Can we learn from the rich? It’s tempting to write them off as lucky, but it’s not true. A recent study by BMO Harris Private Banking found that—rather than winning the lottery or inheriting their wealth—a full 94% of Canadians with more than $1 million in investable assets made the bulk of their fortunes on their own. Given such self-made success, it’s not overly presumptuous to suggest that we can indeed learn from the wealthy. Not just about how to make money, but how to grow it and keep it as well.
With that in mind, in the upcoming section of this report we focus on how the wealthy invest, borrow and pay taxes. They really do have a different approach. For instance, high-net-worth individuals are generally better at putting together long-term wealth plans than regular people. While most of us scramble to make last-minute RRSP contributions or start wondering how to reduce taxes in retirement the year we retire, the wealthy tend to realize that building wealth and reducing taxes requires a plan that allows you to see decades into the future.
Rich people are also better at diversifying. Of course, it’s easier to spread your bets across different asset classes when you have a bigger portfolio, but diversification is becoming easier for regular people. For example, new exchange-traded funds (ETFs) allow investors to track commodities, overseas indexes, and alternative investments more efficiently.
The wealthy are also better at keeping their investing fees low. They don’t invest their $5-million portfolios in mutual funds that charge a 2.5% fee. Those in the know make sure they don’t pay more than 1.5% in fees—a lesson we all can learn from. But that doesn’t mean that the rich are averse to paying for advice when it will save them money, such as clever ways to slash taxes.
Over the next week, we’ll drill down into common financial strategies used by the wealthy and let you know how they can be applied to your life. We start with a look at alternative investments, such as international real estate, hedge funds and futures. Then we explore strategies for using borrowed money. Finally, we discuss tax strategies that will allow you to keep more of that newfound wealth in your pocket. In each case, we look at what the wealthy do, and we include a special section on how the aspiring wealthy can benefit too.