It is not just the investment services industry which is suffering from falling stock markets. The number of millionaires in the United States is also shrinking, says a new study from NFO WorldGroup, a marketing information company based in Greenwich, Connecticut. Registering the first decline in over a decade, the number of American millionaires fell by 11 per cent in June 2002 compared to year ago. This year, millionaires are also less confident regarding their financial circumstances, according to the NFO study, the 2002 Affluent Market Research Programme.
“The decline in the equity markets finally caught up with this group of investors,” explains David Thompson, director of affluent market research at NFO Financial Services, a division of NFO WorldGroup. “In the early stages of the current bear market, from mid-year 2000 to mid-year 2001, the number of millionaires basically stayed the same largely due to the strength of their diverse portfolios.”
However, this is no longer the case, as the number of millionaire households fell from about 3.7 million at mid-year 2001 to 3.3 million at mid-year 2002. And, with the decline in their numbers also comes a decline in the overall financial confidence of these millionaires. The Affluent Confidence Index, a measurement of the sentiment of wealthy Americans toward their personal financial situation and of the economy as a whole over the next six months, fell from 16.2 to 15.5.
“This startling year-to-year decline in the confidence index is related to their pessimistic outlook toward their income and general financial situation,” continues Thompson. “This rather dreary outlook is also reflected in a shift in some key attitudes toward investing.”
The study also revealed that millionaires have become less likely to take calculated risks when investing. Nearly two-thirds describe themselves as becoming much more conservative in their investment approach in the past year. Not surprisingly, there has also been a sizeable shift toward an investment objective of wealth preservation rather than wealth accumulation. However, while these millionaires have less confidence in their own financial fortunes in the near term, their outlook on the overall U.S. economy going forward has improved significantly from a year ago, with attitudinal indicators suggesting that the millionaire investment psyche is only temporarily wounded. For instance, compared to a year ago, they are now more apt to become actively involved in the day-to-day management of their investments-three-quarters claim to still have a long-term perspective on the stocks they select, and only one-quarter claim to be adverse to investing in the market due to its volatility.
“The shift away from a single-minded focus on asset growth is probably very healthy for wealthy investors. This will significantly force many organizations that serve affluent investors to broaden their offerings to put more emphasis on wealth preservation and wealth transfer services,” concludes Thompson.
Interestingly, not all segments of the affluent market fared as poorly as the million-plus group. The study estimates that the so-called “mass affluent,” households with net worth between $500,000 and less than $1 million, declined only about one percent from the 3.6 million recorded in 2001. And way up-market, households in the $5 million-plus category experienced a modest increase in numbers, from about 480,000 households to 483,000.