The Spectrem survey numbers reflect optimism.
At long last, confidence in the market is on its way back. The Chicago-based Spectrem Group, a strategic consulting firm specializing in the affluent and retirement markets, announced in late January that its Spectrem Millionaire Investor Confidence Index (SMICI(R)) gained 13 points in the first month of 2013, to reach a two-year high.
The uptick likely was partially fueled by the last minute deal that prevented the economy from sliding over the fiscal cliff, but I bet the real driver was the market’s stellar performance. Sticking with the timeframe of the Spectrem survey, the Dow Jones Industrial average had its best January in almost two decades, closing above 14,000 on February 1 for the first time since 2007, up 6.8 percent for the year. The S&P 500 Index also rallied in January and hit a five-year high, up 6.4 percent, in early February.
Largely positive corporate earnings reports and a report that showed that the U.S. trade deficit narrowed sharply in December certainly provided more fuel for the market’s impressive advance. And individual investors have responded, pouring a net $4.1 billion into stock mutual funds in the first month of the year, according to data provided by Lipper.
According to the Spectrem Group, millionaires were the most active in the markets in January and expressed greater confidence in the economy. Interestingly, when asked for the major factor influencing their investment plans, the highest percentage of investors surveyed by Spectrem said “stock market conditions,” followed by the “economic environment.”
The Spectrem survey also found that 55 percent of American millionaires plan to put money into stocks this year, up from 45 percent in 2010.When asked which sectors they plan to invest in, respondents ranked technology first, followed by healthcare. Oddly, their least favorite sectors, construction, autos and transportation, are most often the very sectors that lead an economic recovery.
As a backdrop to all this optimism, here’s a statistic that seems almost unbelievable given the recession in 2008 and ensuing market volatility: the population of millionaires in America is now at or above its 2007 high. According to Spectrem Group, there are about 9 million American households with investible assets of $1 million or more. And if real estate fully recovers in 2013, that number will certainly grow.
A recent CNBC article, And We’re Back! Dow 14,000 Fuels a New Wealth Boom provides further insight into this resurgence of wealth. According to the article, the total wealth of the Forbes 400 hit $1.7 trillion in 2012, surpassing the record of $1.58 trillion in 20008. The average net worth of the Forbes 400 -lister topped $4.2 billion–the highest the survey ever recorded.
However, the CNBC article also notes that with the Dow hitting 14,000 and investors recovering the more than $8 trillion in wealth lost during the recession, that there has been a “massive reshuffling in the world of wealth, where millionaires and billionaires have fallen out of the top and been replaced by the freshly minted rich.” For instance, the article points out that billionaires like hedge-funder Phil Falcone, real-estate tycoon Tim Blixseth and banking chief Sandy Weill fell off the Forbes list, and were replaced with Facebook’s Mark Zuckerberg, Under Armour’s Kevin Plank and Spanx founder Sara Blakely.
Bottom line, according to the CNBC piece: The market is quietly restoring and creating massive fortunes. For instance, the Forbes 400 list has welcomed back Sheldon Adelson, the casino king who lost more than 90 percent of his paper fortune and earned it back. Also, Netflix CEO Reed Hastings saw his fortune more than triple in the first few weeks of the new year.
A key statistic from the Federal Reserve certainly supports this observation. Specifically, the Fed says the “top one percent” experienced a turnover of more than a third between 2007 and 2009. That is, in just two years, one third of the wealthiest Americans lost their spots to those with new money.
It’s terrific to see resurgence of confidence in the market. However, we remain mindful that the markets may soon be driven by what Chairman Greenspan once described as “irrational exuberance.” With that in mind, it’s worth repeating that the best way to build–and to maintain–wealth is with an ultra-globally diversified, low-cost portfolio.