At first glance, Bernie Li might not seem like a typical high-net-worth investor. He hasn't been building his wealth over decades. He's willing to consider high-risk, high-potential investing opportunities. And he's unapologetically "new money."
Really new. As in 2014 new.
That's when the former entrepreneur sold Toronto-based Pure Energies Group Inc., a residential solar company he co-founded and ran for about five years, to NRG Energy, one of the largest alternative energy producers in the United States. Suddenly Mr. Li found himself solidly in the high-net-worth bracket and looking to build and protect his assets.
But in one way, he's like many long-time affluent investors: how he describes his investment mood. "Cautiously optimistic," he says. While that might sound as if he's hedging his bets, his tempered enthusiasm speaks to the restlessness felt by those who have a lot to lose and gain if stock markets move.
Consider the latest results from the quarterly Tiger 21 survey, which reveals how North American investors with a minimum net worth of $10-million invest. Cautiously optimistic is a good way to describe their mood in early 2016. No major moves, just a bit of portfolio tinkering to firm up the foundation and mitigate risk. There's an uptick in long-term investing in private equity, and a slight shift to fixed-income.
The results aren't a surprise to Tony Maiorino, head of RBC Wealth Management Services. They reflect his firm's data, which show high-net-worth investors are concerned most about protecting wealth, funding retirement, maximizing investment returns and minimizing tax, in that order.
"We're not seeing a lot of doom and gloom," he says. "We're not seeing a lot of people battening down the hatches in preparation for anything huge."
Dylan Reece, a financial adviser and associate portfolio manager at Nicola Wealth Management in Vancouver, a firm that deals almost exclusively with wealthy clients, says the well-to-do have similar concerns as the rest of Canadians, just on a different scale.
"They're worried about volatile markets, low interest rates and reducing and even depleting their investment capital during their lifetime," Mr. Reece says. "Some people would think, oh, high-net-worth investors, they never have to worry about running out of money, but in fact, they do under certain circumstances."
Affluent investors are taking cues from the asset allocation strategies of major pension plan endowment institutions, says Mr. Reece. No traditional retail mutual funds here. Instead, think private equity, income-producing real estate, commercial mortgages, infrastructure and even farmland.
"These assets are certainly less liquid than public markets, but they also tend to be less volatile and produce higher returns," he says.
That is, the wealthy are playing a waiting game.
Alan Hart, an accounting executive at an architectural firm in Toronto, knows all about biding one's time to build a healthy portfolio. While not in the same stratosphere as ultra-high-net-worth individuals, he started buying stock years ago and now holds more than $500,000 in investible assets.
He also still holds one of his first major investments, FirstService Corp., which he bought for about $6.50 a share in the mid-1990s. Taking into account a stock split and a spinoff that split the company in two (FirstService and Colliers International), a single share is worth $215 today.
As a value investor, he says he's optimistic even in the midst of market volatility, swinging oil prices and a dipping Canadian dollar. Because he has chosen strong, stable companies, these outside forces are less likely to keep him awake at night.
He also points out that once an investor amasses enough of a financial cushion to live well even in retirement, some of the pressure to grow the portfolio fades. "You're investing money you don't immediately need," he says.
Many high-net-worth investors are good at taking the long view, whether they are running their own companies or investing, says Laurie Bonten, senior vice-president and senior investment adviser for National Bank Financial in Winnipeg. They have lived through crashes, so they remain optimistic no matter how the markets are behaving.
"Very few of them react to that volatility," she says. "They may call and say, 'How much oil do I have in my portfolio?' because they've heard about oil in the news. But smart money stays smart. They stay true to their plan."
Adam Hennick, a financial adviser for Mackie Research Capital Corp. in Toronto, says he tends to keep his wealthy investors in safer, less risky investments that preserve wealth, since they already have more money than they need.
"Think of it this way. If you had $25-million more than you needed and you came to me saying, 'I've already paid off my house, bought a cottage and got a motorcycle,' what would you want to do with the money? Protect it," he explains.
For his part, Mr. Li, who is 41, says that although he's a new high-net-worth investor – he hasn't lived though crashes like those in 1987, 1994 or 1997 – he's got years to play with. He's willing to take a few risks and remain in growth mode rather than focus on preservation.
"I'm watching how to diversify and put a plan in place," he says. "That being said, if you can find an opportunity to invest with some volatility risk taken out, while still achieving performance, you have a winner."