Over the course of my working career, I’ve noted several behaviours and personality traits shared by successful business owners and other high-net-worth (HNW) individuals.
One of those traits is the belief in certain wealth principles – core beliefs and values that guide the way they invest and manage their wealth.
Without a strong sense of what you believe in, it’s easy to become sidetracked, distracted or even duped into putting your wealth where it doesn’t belong. On the other hand, with a strong set of principles to guide you, it will be easier to stay focused on your financial and lifestyle goals and secure the wealth you’ve worked hard to build.
With that in mind, here are some of the core principles that guide many of the successful HNW investors I’ve met.
Most of the successful HNW individuals I know are contrarians at heart. They are independent thinkers. They like to buy quality assets that have been devalued unfairly. While they like to keep tabs on investment trends and market movements, they are confident in their abilities as investors. They base investment decisions not on emotion, but on objective, reasoned analysis. Rather than following the crowd, they look for opportunities to exploit the decisions of the crowd. This philosophy of independence, this willingness to “zig” when everyone else “zags,” is what has made them into the successful investors they are today.
Most HNW individuals I meet are more concerned with risk than return. While portfolio performance is important to them, they understand that the primary purpose of wealth management is to minimize portfolio risk. To put it another way, they believe that securing wealth comes first; building wealth is an important, but secondary goal. By clearly defining reasonable performance benchmarks and being cautious about adding performance-enhancing investment products or strategies, these individuals have ensured they don’t gamble away what they’ve worked so hard to build in an effort to get “more.”
Diversification is an important strategy for all investors. But for the successful HNW investors I know, it has become a core belief. For a variety of reasons, HNW portfolios tend to be more concentrated than those of the majority of the population. This is particularly true of business owners, who often hold the bulk of their net worth in a single operating business. While this may be a good way to build wealth, it’s rarely a good way to secure wealth. Yes, at times diversification means trading potential gains for security. But judging from the wealthy people I know, that trade-off is almost always worth it.
The HNW individuals I know are keenly aware of tax. The reason is simple: because most HNW individuals are already in high tax brackets (if not the highest), taxes pose a more significant threat to their ability to secure a high quality of life.
Which is why successful HNW individuals have cultivated a general understanding of current tax legislation and make their investment decisions with an eye to after-tax return.
It’s an old-fashioned idea, but most of the high-net-worth people I know firmly believe that with great wealth comes great responsibility. When I speak to them about their goals and aspirations, it becomes clear that they’re managing wealth not only for themselves, but also for the next generation – their children, their grandchildren and the community at large.
I would suggest that this principle is at the heart of the difference between wealth and true wealth. •
Thane Stenner ([email protected]; www.stennerinvestmentpartners.com) is the founder of Stenner Investment Partners within Richardson GMP Ltd. He is also managing director for Tiger 21 Canada (www.tiger21.com/canada) and the author of True Wealth: an expert guide for high-net-worth individuals. His column appears every two weeks.