What are the keys to the millionaire investor’s heart?
According to recent research, they may be alternatives and active strategies.
Today, investors with more than $1 million in assets are more willing to embrace new investment opportunities than the less affluent, according to recent research from Greenwich, Conn.-based AMG Funds.
“Generally speaking, millionaires tend to be more confident in their decision-making and they’re more comfortable overall,” says Bill Finnegan, chief marketing officer for AMG funds. “Investors under $1 million don’t really have that confidence. For millionaires, I think it’s because they’re getting advice, sometimes from more than one person.”
Millionaires are more resilient than other investors. While 62 percent of less affluent investors admit that large swings in the stock market make them uncomfortable, only 46 percent of millionaires feel the same, says the study.
That optimism seems to carry over to an elevated interest in new investment strategies among millionaires, says Finnegan, but advisors aren’t taking advantage.
“There’s an opportunity in educating people about these products,” Finnegan says. “The names we apply to some alternative products and the ways we describe them are not easy to follow, and it isn’t easy for investors to figure out what they’re trying to accomplish.”
Millionaires receiving professional financial advice were more likely to embrace new investing ideas than those without an advisor, 63 percent to 37 percent.
While 27 percent of millionaires who do not have a financial advisor say they wish they knew more about alternatives, that number increases to 46 percent among millionaires who are receiving professional financial advice. Half of advised millionaires have discussed alternatives with their advisors, but only 29 percent say those discussions were initiated by their advisor.
According to the study, the millionaires’ top three goals for their advisors are to diversify their portfolio, to rebalance or adjust their investment allocations if market conditions change and to have someone to explain complex investments or strategies in a simple, understandable manner.
“Millionaires have an interest in new products in the marketplace,” Finnegan says. “There are lots of products that are less understood, and it’s on the financial industry to provide greater insight for these investors.”
In other words, AMG’s respondents value investment advice, especially when it comes to information on alternative investments and active management.
Most millionaires, 58 percent, say they own their alternative investments to diversify their investment portfolios, says Finnegan, but “their understanding of diversification may not be entirely correct. For example, owning a broad basket of stocks or securities does not mean they’re diversified. Understanding true diversity has to be part of the planning package.”
Millionaires are bracing themselves for more market turmoil — 49 percent of millionaires expect high volatility over the next 12 months, vs. 39 percent of the less affluent. Millionaires are more likely to feel well positioned in the case of a major downturn than the less affluent, 61 percent to 55 percent.
That means when the stock market goes lower, millionaires are more likely to take advantage. While 32 percent of millionaires said they would view a bear market, or a 20 percent drop in the stock market, as a buying opportunity, 23 percent of the less affluent felt the same.
“It isn’t just due to the size of a millionaire’s assets, but because these are individuals with more investment experience,” Finnegan says. “Over time, they’ve seen lots of market cycles, they’ve been in the markets when they’ve reacted poorly, and they’ve learned the courage to stay the course.”
Millionaires are also more likely to believe in the potential of active strategies. According to AMG’s study, 67 percent of millionaires own active investments, versus 54 percent of less-affluent investors.
“Not only do they have more courage, but millionaire investors are more likely to buy products that protect them more on the downside,” Finnegan says. - fa-mag.com
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