Millionaires optimistic on 2009 economy

December 8, 3:26 PMBaltimore Financial ExaminerTom Taylor, CPA/PFS

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Disney's Peter Pan and the Lost Boys

Here's a great synopsis of how the smart money see's things.  I'm reminded of that great Peter Pan and the Lost Boys song ... you know the one ... "Following the leader, the leader, the leader."

On Wall Street, to find the stock leaders of tomorrow, you need to follow the money, particularly the smart money, it always knows.  In my analogy the lost boys are the lost investors of what will be known as the "Lost Decade on Wall Street."  Peter Pan, that's easy ... he's the smart money.  At current stock market levels there's no need to be cute with your stock picks, follow the leaders.

Hope springs eternal for the millionaires in the survey; for the rest of us, let's just remember not to jump off the ship at the bottom and follow the smart money to a comeback year in 2009.  Of interesting note is that the millionaires in the survey rely heavily on the advice of independent financial advisors.  These millionaires also trust their primary advisors to manage a larger share of their investable assets—71% in 2008 compared to 56% in 2007.  Here's the article...

Not even a cockeyed optimist could be pleased with the current state of financial affairs.  Home prices continue to lose altitude, the stock market has plummeted, and a recession seems certain. Yet if you look ahead to next year, the view brightens considerably—or at least it did for participants in the 2008 Fidelity Millionaire Outlook, a survey of more than 1,000 decision-makers from families with at least a seven-figure net worth (excluding real estate and retirement assets). Asked last January for their opinion of the economic climate, they could hardly have been gloomier. But when questioned about 2009, most predicted a rebound, especially in real estate and the stock market.  Many also said they intended to add to their investments in the meantime.

The survey, conducted for Fidelity Institutional Wealth Services, asked respondents to rate perceptions of five key areas—consumer spending, business spending, value of real estate, the stock market, and the economy—on a scale of one to five, from “very weak” to “very strong.” Those answers contributed to an overall “confidence score” that could range from -100 (most pessimistic) to +100 (most optimistic). The composite confidence level in January 2008 was decidedly downbeat, at -50, whereas the outlook for 2009 was a much more sanguine +18.

It also turns out you’re only as wealthy as you feel—and that the wealthier these millionaires perceived themselves to be, the sunnier their outlook. Those who said they felt wealthy had confidence scores of -47 and +21, respectively, for their current and future outlooks. That compares with scores of -58 and +8, respectively, for those who didn’t consider themselves so wealthy. 

Three out of four of the surveyed millionaires, who had average “investable assets” of $4.3 million, reported their portfolios had suffered in the wake of the subprime mortgage meltdown. But more than 40% expected the subprime situation to improve within a year, and almost as many looked upon high energy prices, though perhaps a personal bane, as a good investment opportunity.

There could be bumps on the road to better days, according to the survey. Most surveyed millionaires, for example, considered it likely or very likely that the next five years will bring significant hikes in tax rates on income, dividends, and capital gains, and they expected they would need to adjust their investment strategies as a result.

And if they needed help with those strategies? More than 26% of respondents to the 2008 survey was working with an independent financial advisor, compared with 22% in 2007. These millionaires also trust their primary advisors to manage a larger share of their investable assets—71% in 2008 compared to 56% in 2007.

The above article was originally published as a financial brief on the Thoma Captial Management LLC Web site and prepared by a professional journalist for Advisor Products Inc. Tom Taylor, CPA, is a Principal with Thoma Capital Management, a fee-only Financial Planner and Certified Public Accountant and can be contacted here. He is a member of NAPFA and the MACPA.