Wealth in America Survey 2008

Northern Trust’s third annual Wealth in America survey reveals millionaire investors’ responses to the real estate market turmoil, and generational differences in beliefs about the ongoing economic uncertainty.

LEARN MORE: Northern Trust’s annual Wealth in America study represents one of the most complete pictures available of U.S. millionaires and their finances. Major topics covered by the study include millionaires’ attitude toward the stock market and investments, asset allocation plans, use of professional advisors, views on philanthropy and inheritance, and plans for retirement. To read the full results, visit northerntrust.com/wealthinamerica.

Two broad themes permeate Northern Trust’s 2008 Wealth in America study: a “steadfastness” of millionaire households despite negative economic news, and a distinct generational difference among high-net-worth households in their attitudes and approaches to their finances.

The Wealth in America study¹ explores affluent investors’ attitudes toward the stock market and investments, asset allocation plans and using professional advisors; their views on philanthropy and wealth transfer; and their plans for retirement. Here’s a quick look at some of the key findings from the report.

Optimism Remains, But Concerns Rise
Despite the onslaught of negative economic news, most millionaire households remained optimistic about the performance of the U.S. stock market in 2008. Some foresaw a decline in interest rates, while others were confident about corporate earnings growth or expected strong U.S. economic growth.

Yet not everyone remains optimistic. According to the study, those who expect negative or flat market performance in 2008 almost doubled since last year’s survey, from 6% to 11%. This negative outlook is based mainly on their expectations of slowing economic growth and a continuation of the downturn in the real estate market.

“I don’t think the economy will show much improvement this year,” says Robert Rogers^*, a real estate investor who did not participate in the survey. “We have the mortgage crisis and credit crunch, and the price of oil is at an all-time high. I don’t expect much improvement until after the presidential election.”

Real Effects of Real Estate Slump
Many respondents said that one change in their investing behavior during the previous year was to lessen their focus on real estate investments. Despite the increased market volatility in the latter half of 2007, millionaires’ asset allocation has remained stable since 2005. The largest change has been in real estate investments — millionaires’ allocation since 2005 has dropped from 13% to 6%, due to a decline in asset values and investment sales.

But Rogers says he’s not selling any of his real estate any time soon. “The real estate values have taken a hit in the last year, so I plan to wait until they rebound. They’re still producing a good income stream,” he says.

The Generation Gap
The study found that Gen X millionaires (ages 28 to 42) were more optimistic about the stock market’s performance in 2008 than other age groups, with 28% expecting the market to increase by at least 10%. Only 14% of Boomers (ages 43 to 61) and 9% of the Silent Generation (ages 62 and older) were that optimistic.

“I think we’ll see a steady improvement in the stock market over the next year,” says Jon Morris, a Gen X entrepreneur.

Generational differences were also found in asset allocation. The study reported that Gen X millionaires employed a more sophisticated approach than older millionaires. This can be seen in their higher allocations to alternative asset classes such as hedge funds and private equity. Gen X households have 23% of their assets in alternatives, compared with 13% for Boomers and 10% for Silent Generation millionaires.

“In the past, I’ve invested primarily in publicly traded stocks, though I’ve diversified my portfolio by investing in art,” Morris says. “But I’m already planning a discussion with my financial advisor about my options for investing in alternative asset classes.”

More Seek Out Advisors
Perhaps because of the increased complexity of the securities markets and the greater availability of investments focused on alternative asset classes, millionaire households have become more advisor-oriented during the past two years. Three in five millionaires (60%) now describe themselves as relying mainly on their advisors when making investment decisions, up from 55% in 2005. Most of the increase has been in the portion of investors who are “advisor-directed” (where the advisor makes most or all investment decisions) rather than “advisor-assisted” (where the individual consults with the advisor, but makes the final decision for him- or herself).

Gen Xers, despite their more aggressive risk profile, were more likely than older generations to be advisor-assisted and less likely to be advisor-directed. For many business owners like Morris, depending on an advisor for direction or assistance is not only about navigating complex investment issues, but also a product of a limited schedule. “I am definitely reliant on my advisor. I just don’t have the time to manage my investments personally, so I need to lean heavily on my advisor for guidance,” says Morris.

As has been the case for many years, stock, bond and mutual fund selection remained the service most used by high-net-worth households in 2007. However, the use of retirement planning services has increased significantly during the past year, as you might expect given the large number of Baby Boomers who are entering the critical retirement planning phase.

The Wealth in America 2008 survey provides interesting insight into the behavior and beliefs of millionaire households. If you would like to see the complete survey results, please visit northerntrust.com/wealthinamerica.

¹ Northern Trust’s Wealth in America study was a nationwide survey of 1,014 millionaire households conducted by Phoenix Marketing International in October and November of 2007.

^* Name changed for privacy purposes

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