I had a lot of fun writing the Gen Z and the Summer Job post last week. With teenage entrepreneurs striving to earn money now, what better time to follow up with an article on Millionaires. According to Fidelity’s recent study 86% of them are self-made.
Fidelity Investments® released results of its fifth Fidelity® Millionaire Outlook, an in-depth survey analyzing the investing attitudes and behaviors of more than 1,000 millionaire households1 . This year’s study found that 86 percent of millionaires are self-made and that their path to wealth, financial outlook and goals greatly impact their investment behaviors. In addition, millionaires’ outlook on the future financial environment is at its highest level in the survey’s history, underscored by their confidence in the stock market, as millionaires ranked domestic stocks their number one investment added in the last year.
Millionaires’ Outlook Highest Yet
Using a scale where +100 represents the most favorable outlook, zero is neutral and -100 is the most negative outlook, this year’s study found that millionaires’ outlook of the future financial environment continues to improve, with their future outlook reaching +39, the highest level since the survey’s inception in 2006. Despite millionaires’ outlook on the current financial environment remaining negative (-29), their near-term confidence is on the rise, consistently increasing by nearly 50 percent each year since 2009. (For a graphic comparing millionaires’ views of both the current and future financial environments from 2006 to 2012 to a broad economic indicator, the U.S. gross domestic product (GDP), click here.)
Millionaires’ confidence in the future was driven by positive sentiment about business spending (+43) and consumer spending (+42), which is at its highest level in the survey’s history. Millionaires’ continued trepidation around the current financial environment stemmed from their lack of confidence in the value of real estate (-75), the economy (-49) and business spending (-32).
“One trend has held true throughout the life of this study – the millionaire investor’s outlook has been consistently pragmatic about current market conditions and pervasively optimistic about a future recovery,” said Michael R. Durbin, president, Fidelity Institutional Wealth Services®.
“In many ways, what millionaires have been thinking and doing can be a strong indicator for financial trends, as they are often the first to jump on an opportunity in the market – as they have recently with domestic stocks,” Durbin continued.
Today’s Millionaire Ranked Domestic Stocks as No. 1 Investment Choice
When it comes to where they are currently investing, millionaires ranked individual domestic stocks as their No. 1 investment added in the last year, followed by certificates of deposit/money market accounts/cash equivalents, equity exchange traded funds, individual domestic bonds and domestic equity mutual funds. Of those investments, significantly more millionaires chose equities over fixed-income investments – an inverse trend from the investment strategies of the average investor2.
Millionaires’ Background, Outlook and Goals Impact Investment Behaviors
According to the 2012 study, today’s millionaire is, on average, 61 years old with $3.05 million in assets. Seventy-four percent of millionaires today feel wealthy, and those who do not said they would need an average of $5 million of investable assets to begin feeling wealthy.
“This year, we went beyond just the demographics of millionaire investors and took a closer look at what has been driving their actions,” said Sanjiv Mirchandani, president, National Financial®, a Fidelity Investments company and the nation’s second largest clearing provider. “What we found is that today’s millionaires are multi-dimensional, and to really understand them, you need to look not only at their outlook, but also at their path to wealth and their financial goals for the future.”
1. Path to Wealth
Eighty-six percent of today’s millionaires did not consider themselves wealthy growing up (“self-made”), while only 14 percent said they grew up wealthy (“born-wealthy”). Key findings include:
- Of those who are self-made, their top sources of assets included investments/capital appreciation, compensation and employee stock options/profit sharing. Those who were born wealthy were more likely than the self-made group to cite inheritance, entrepreneurship and real estate investment appreciation as an asset source.
- Self-made millionaires typically felt just as financially secure as those who were born-wealthy.
- Born-wealthy millionaires were greater financial advice users with distinct advice needs, such as personal trust services and foundation/endowment management.
- When it comes to investment strategies, those who are self-made were more likely to add equity investments, while those who were born wealthy typically had more real estate investments.
2. Financial Outlook
Thirty-five percent of millionaires had a negative outlook on the current financial environment, while 31 percent had a positive current outlook. The remaining 34 percent had a “neutral outlook.” Key findings include:
- Despite a lack of confidence in the current financial environment, those with a negative outlook still had a favorable outlook on future recovery (+11).
- Those with a negative outlook also were more actively receiving financial advice on topics like general financial planning and retirement planning.
- Finally, the investment strategies of those with a positive outlook show that they have been more active in the stock market, while those with a negative outlook typically added more cash-like products.
3. Investment Goals
The study found that when it comes to concerns about their financial future, 30 percent of today’s millionaires were concerned with preserving their wealth (“preservers”), while 20 percent were focused on growing their wealth (“generators”). Other financial concerns, such as managing income flows in retirement, supporting the lifestyle they want in retirement and managing investments, made up the remaining 50 percent. Key findings include:
- Those looking to generate more wealth were not driven by having less money or feeling less financially secure, as they were just as wealthy and just as financially secure as those who are looking to preserve wealth.
- Increasing wealth is not just for the young – of those looking to generate wealth, nearly two-thirds were older boomers and seniors (61 percent).
- Generators are also more loyal to their financial advisors, with 71 percent of generators likely to move with an advisor who switches firms.
- Generators have been more active in the stock market along with being more likely to add domestic bonds to their portfolios than preservers.
Copyright TIGERS Success Series by Dianne Crampton
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