Millionaires Make A Move

By Christiana Cefalu, Barrons

To find out why stocks are currently on the rise, despite all the dour headlines, the 2012 Fidelity Millionaire Outlook survey, analyzed the attitudes and decisions of 1,020 millionaire households in the 12 months leading up to March, 2012.

Whether a gloomy millionaire or an optimistic millionaire, in both cases rich investors were quietly adding to their stock portfolio, in contrast to the general investor, who has retreated from stocks to fixed-income investments since the start of recession.

Twenty percent of the surveyed millionaire households said they added individual U.S. stocks to their portfolios. Runners up were CDs/money market/cash equivalents (13%), equity Exchange Traded Funds (11%), individual domestic bonds (10%) and domestic equity mutual funds (10%).

But the Fidelity survey drilled down on both bears and bulls, and that’s where the study got interesting. Even the very wealthy with a negative outlook on the financial environment favored stocks. But this pessimistic group hedged their bet with assets like CDs, money market accounts, and cash equivalents, while those with sunnier outlooks doubled down with domestic equity mutual funds and domestic bond mutual funds.

So why are even bearish millionaires still hot on stocks? Call it the comfort factor. Eighty-six percent of millionaires describe themselves as “self-made,” as opposed to born wealthy. That explains the attraction to individual domestic stocks. For the majority who weren’t wealthy growing up, “many of them built their wealth through the capital markets.” So they have ridden the market cycles, know what the market can do for them, and generally strike when they see upside potential.

Moral: The smart money is more upbeat about the future than the headlines suggest. That’s a warning to the terrified who are sitting on their hands while the equities markets continue to rise.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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