Saturday, April 28, 2012

Invest like a millionaire!

There aren't many people out there who wouldn't like to be a millionaire, but just because you aren't quite there yet, doesn't mean you can't learn a few things from the way they invest.  Charles Paiement recently wrote about this on yourmoney.ca.

Millionaires don't need to grow their money for retirement, so they place greater emphasis on planning for future generations.

I'm often asked how millionaire clients invest their money.  First of all, millionaires are looking for capital preservation and revenue.  They don't feel the need to see their portfolios grow quickly and they definitely don't want to see their hard earned/inherited fortunes fluctuate.  There are many things that the average investor can learn from millionaires, and here are a few of them:

Millionaires are conservative
Many of my millionaire clients have very conservative asset allocations, meaning that most of their money is in bonds and preferred shares. This also means that their portfolios don't fluctuate much.  They are also frequently looking for tax savings; these millionaires are still working and making big salaries, thus paying lots of income tax.

They also prefer dividends to interest, because dividends are taxed at a lower rate than interest.

Millionaires maximise their TFSAs
Although the maximum you can contribute to your TFSA is $5000 per year, millionaires are now reducing the amount they contribute to their RRSPs to the benefit of their TFSAs. Being millionaires with already large RRSPs, they want to avoid paying additional income tax at retirement.  Some millionaires have altogether stopped contributing to their RRSPs, investing any excess money in TFSAs and regular taxable accounts instead.

Millionaires plan ahead
More and more millionaires are turning to their investment advisors to figure out how much they actually need for retirement, since they probably have more than enough.  They also want to know what the most tax efficient ways are in order to leave as much inheritance as possible for future generations.

Financial planning has become a significant part of the millionaire's financial structure, just as much as the actual selection of securities.  This is the aspect to millionaires' investments which is the most applicable to all investors.  Financial planning should be done by everybody, no matter how much money you have.

In order to plan the purchase of a home, a new car, a trip, a child's education or a perfect retirement, financial planning is the key to success.

Now you can invest your money like the wealthiest do!


Source: Invest Like a Millionaire