Financial advisors, take heart. Your days of fielding endless calls from angry, depressed clients may be numbered. Yes, even with the markets surging more than 30 percent off of March lows in the past two months, the mood among investors remains bleak today. But underneath the general gloom, there is a hint of optimism, according to a recent survey of millionaire investors released by Fidelity Investments.
The Fidelity Investments 3rd Annual Millionaire Outlook, conducted in late February, mines the investing attitudes and behaviors of more than 1,000 millionaires, who have an average of $3.5 million in investable assets and $306,000 in annual household income. Perhaps not surprisingly, just under half (46 percent) of all respondents reported that they don’t feel “wealthy” despite their millions. Of that group, forty-two percent blamed losses in the stock market. The 54 percent who do feel wealthy gave the following reasons: “living within means with little or no debt” (23 percent); “protected assets with diversified portfolios and conservative investments” (21 percent) and have enough savings (19 percent).
As a group, the respondents may have taken a financial beating—although the survey says on average respondents saw (only) a 19 percent decline in assets during the past year—but they’ve also been here before and thus benefit from perspective: 79 percent have “personally experienced” the last four major recessions in the U.S.—2000-2001, 1990-1991, 1981-1982 and the 1973 oil crisis. And yet, 77 percent of respondents rate the current recession worse than these previous four. On a scale of -100 to +100, respondents rated their current view of the U.S. economy, on average, at a -91, down from -51 in February 2008. That’s a pretty dismal number.
And yet, their outlook for the future is much more optimistic: The wealthy expect a turnaround in 2010, and hiked their ranking of the U.S. economy to +28 when asked to project ahead. That optimism is, in fact, in step with Federal Reserve Chairman Ben Bernanke’s predictions this week for a fourth quarter turnaround.
Asked what advice they would give others in today’s environment, 42 percent of respondents said they would tell others to “stay the course, be patient, keep a long-term investment strategy”; another 24 percent would say “don’t panic, stay calm and ignore pessimistic reports”; and another 23 percent would advise peers to “cut back spending, save more”; 15 percent would say “take advantage of bargains and look for buying opportunities.”
Asked which investments they will be acquiring over the next 12 months, caution still prevails: 32 percent said bonds/fixed income/CDs/money markets/cash. But clearly some see bargain hunting opportunities: 31 percent said “individual stocks;” 25 percent said “mutual funds,” not including life cycle funds; 20 percent said IRAs and 19 percent said “employer sponsored retirement plans.”
The Fidelity survey also asked how they would respond to any tax hikes implemented by the Obama Administration. Some 50 percent of respondents said they plan to sell poorly performing investments to offset capital gains on better performing ones; 20 percent plan to sell appreciated investments and 29 percent plan to avoid higher dividend tax rates with more tax-advantaged mutual funds. Another 18 percent plan to contribute more money to pre-tax retirement programs to lessen their income tax burden.
Asked “At what level of the Dow Jones Industrial Average would you feel confident enough to invest in the stock market?” respondents showed a surprising amount of enthusiasm: 39 percent said 7,000-7,999 (note: the survey was done in late February as the DOW was closing in on the bottom of that range.); 9 percent said they’d feel confident entering the market between 8,000 and 8,999; 19 percent said 9,000 and 9,999; and 16 percent said 10,000 to 10,999. Mike Durbin, president of Fidelity Institutional Wealth Services, the firm’s RIA custodian division, says there may be a nugget of positive sentiment there: “It shows there needn’t be a raging bull market for many of these investors to get back in,” he says.
