Skip to main content
managing great wealth

Justine Zavitz is an advisor at Zavitz Insurance Inc., in London, Ont.

The rich do things differently than the rest of us. Justine Zavitz, an advisor at Zavitz Insurance Inc., in London, Ont., says she can spot the savvy big savers a mile away.

For starters, they don't make the mistake of going it alone when making big financial decisions. Instead, high-net-worth individuals consult qualified professionals – think accountants, investment advisors, lawyers, bankers and financial planners – before taking big steps.

"They're not calling you to get permission. They just want your perspective," says Ms. Zavitz.

While the wealthy clients she works with don't pretend they have all the answers all the time, the same can't be said for some of the more typical folks.

"We've got people who will call me and say, 'Oh, I just bought a million-dollar house. Can I afford it?' Well, does it matter? You've already bought it," she explains. "It's frustrating when you have clients who don't come to you for the help. Only to clean up afterward."

From taking outsized risks with their investment portfolios to splurging on the latest investment fad, here are five more financial mistakes that Canada's wealthy often avoid and how other investors can, too.

Mistake No. 1: Be super-optimistic about the future.

Sure, having a glass-half-full attitude can take you far in life, but according to Ms. Zavitz, many of her wealthiest clients assume a more realistic and cautious view of what life has in store for them.

Rather than just hope that everything works out – their company will always be in the black, no family member will get sick or die – the smartest wealthy investors plan for the worst, too. They buy insurance, create a will and revisit their retirement or long-term financial plan each year, even if they have plenty of money in the bank now.

"There are a lot of people who make a good income who just figure that it's going to work out. They say, 'I make $500,000 a year. I'm going to retire at 65. I don't know how I'm going to get there, but I make $500,000, so it's okay,'" she says. "But the smart ones don't depend on luck. They're proactive and intentional."

Mistake No. 2: Think the stock market is a cash cow.

A 13-per-cent return on an investment sounds like a winner, but according to Dustin Van Der Hout, portfolio manager and investment advisor at Richardson GMP in Toronto, his wealthiest clients are likely to look at that number with trepidation.

Canada's rich invest to maintain wealth, not make it. A return of 6 or 7 per cent? That's just fine if they can avoid taking on too much risk.

"There's a focus on low volatility. It's a realization that the stock market is not there to make you rich. The stock market is there to create a reasonable rate of return," he says. "These people have worked really hard for this money, so the most important thing is to keep it."

What's the most reliable way to make money and meet financial goals faster? Forget the stock market. Instead, earn more money. Work more, launch a successful company or get a bump in pay.

Mistake No. 3: Don't know your true power.

Charlotte Beyer, a four-decade Wall Street veteran and author of Wealth Management Unwrapped, remembers the days when financial firms were still powerful in their clients' eyes. Yet those days are over, particularly for the wealthy.

"These people no longer think a firm is doing them a favour by bringing them on as a client. That's a big, big mental shift," she says. "Investors now realize it's a business transaction and they have power they didn't realize they had before."

Much of this change in attitude can be traced back to the financial crisis 10 years ago when the whole industry was tainted by scandalous transactions and trades. While the wealthy have become more critical and less starstruck by their advisors, typical Canadians are now asking pointed questions too before signing on the dotted line.

Mistake No. 4: Forget that currency is important.

Want to add foreign investments such as stocks, bonds and real estate to your portfolio? Think like the wealthy do: Consider each one as two separate investments, says Camilla Sutton, a long-time market strategist and currency expert in Toronto.

"They're actually two investments. The first is the shares, bonds or real estate itself, but there's also the foreign currency investment." she says. "There is no point in having a great stock pick and losing all the returns on the currency."

Currency is important when the Canadian dollar's value ebbs and flows, particularly when investing for retirement. Say you plan to buy a home in Florida. If you spent Canadian dollars on the house when the dollar was low and then sell when the Canadian dollar's value is high, even if the home's value increases, you can still lose money.

Ms. Sutton's advice? Understand that any cross-border investment includes currency risk, which can be mitigated by hedging in some cases. But remember, your own long-term financial plan is a critical factor in that decision.

Mistake No. 5: Jump on the next financial fad.

While even wealthy investors can be taken for a ride by unscrupulous fraudsters, for the most part they look before they leap when investing in something new.

Ms. Zavitz remembers charitable stock schemes in which people were promised tax receipts for $50,000 in exchange for a $10,000 investment. It was too good to be true.

"The wealthy people are not the ones buying into these things. They're not out to get into the most aggressive, newest fads that aren't tried, tested and true," Ms. Zavitz says. "They trust their advisors and their instincts."

Should you be investing in ETFs or mutual funds? Rob Carrick, personal finance columnist, lays out specific investments, services and brands that are currently great deals for Canadian investors.

Report an error

Editorial code of conduct