Those with more than $1-million of investable assets have had tools to manage their money that have not always been available to Canadians with less wealth.
But a growing number of strategies and products are now available to more investors.
Here are a few methods high-net-worth investors use, that other investors can also consider.
Alternative investments (everything other than stocks, bonds and cash, a list that includes hedge funds, real estate and commodities) were long the exclusive preserve of the big pension funds but filtered down to wealthy investors about a decade ago. Much more recently, that has spread to people with more modest portfolios.
"As alternatives have become more available and more prevalent, even an average investor can make use of alternatives now," says Susan Latremoille, who heads a high-net-worth practice with Richardson GMP in Toronto. "There are lower minimums, there are way more vehicles, entities that they can get into."
For all but the most capable of do it yourselfers, Ms. Latremoille cautions that average investors should seek some assistance in their approach to alternatives. "I wouldn't be diving into alternatives without advice because they are not the be all and end all." Alternatives offer two key advantages to investors, she adds: They can lessen risk in a portfolio that is more volatile and they can replace some of the low-return fixed assets that are a foundation of most people's portfolios and providing near-zero returns in this ultra-low-rate environment.
"So we are using alternatives as almost a substitute for fixed income," she says. That could be real estate, private equity or hedged funds," which can be designed to offer protection in volatile markets.
Hedge funds get a bad rap, she acknowledges, "but a well-managed hedge fund dampens down volatility in a portfolio and can give you sometimes even equity-like returns, but certainly fixed-income-like returns." Those types of investments can be purchased via an adviser through "funds of funds that would have fairly low entry points of minimums of $25,000 or $50,000," she adds.
High-net-worth investors have also benefited over the years by being charged lower fees on a percentage basis than the general public. That is changing as new, often exotic, investment platforms are being introduced at low costs. Exchange traded funds are an excellent example of increasingly sophisticated investments that are easy to acquire and relatively inexpensive on a fee basis.
"Now you have ETFs of pretty much any flavour you want," says Daniel Thompson, a vice-president with Lorne Steinberg Wealth Management of Montreal. His firm has a "buy like Buffett" value investment strategy that uses the Oracle of Omaha's philosophy of buying assets when they are undervalued and holding on to them long-term. ETFs can allow you to invest like Warren Buffett, he says, or use other sophisticated strategies.
"You can have actively managed ETFs, passively managed ETFs with a value bent following a particular value index, etc. So it is possible, if you do your homework and apply the same level of discipline that high-net-worth and active managers like us do, to replicate that type of investment philosophy."
Crowdfunding and private placements
The recent emergence of crowdfunding as a platform for average investors to buy a stake in commercial real estate, for example, is another way that investors can buy assets previously not available to them.
Typical investors could not dream of owning a share in a strip mall in the past; now they can with a minimal investment. "The kind of bucks that we would have needed a couple of years ago are not the kind of bucks that we need now – $5,000 will get you through the door for some of these things," says John DeGoey, a portfolio manager with Burgeonvest Bick Securities Ltd. in Toronto.
Mr. DeGoey, who deals with high-net-worth investors and those a rung below, has noticed that some of his clients are asking to invest in new investment vehicles such as green bonds from CoPower and Solar Share. "I have a half dozen clients who are actively agitating to get them in their portfolios." These green bonds for rooftop power projects allow people to make more ethical investments for as little as $5,000.
Expect to see more of these investments as Ontario has joined other provinces to relax rules regarding private placements, crowdfunding and other investments that required an offering memorandum. That has made private equity investing "more accessible" to the investing public, he says.
"Now there are a lot of ordinary Mom and Pops who can, provided that they do so in smaller amounts, start buying Solar Share bonds," says Mr. DeGoey. "They certainly aren't suitable for everyone, but provided you don't do it in ridiculous amounts, you can do it where before you couldn't do it at all."