US Trust announced the findings of the 2007 Survey of Affluent Americans, which focuses this year on a higher net worth demographic. Unlike past years’ surveys, in which primary residence and income were factors in respondent eligibility, the 2007 survey polled an even more elite sample both in terms of size and composition, consisting exclusively of Americans with more than $5 million in total investable assets (high net worth individuals). Also included in the survey is a new focus on Americans with more than $25 million in total assets (ultra high net worth individuals).
“As wealth continues to grow in the United States we felt it was important for this survey to reflect the views and concerns of both high net worth and ultra high net worth Americans,” said Frances Aldrich Sevilla-Sacasa, president and chief executive officer of U.S. Trust. “These findings are particularly relevant if you consider we found the vast majority of these individuals did not grow up with wealth.”
The majority of respondents view hedge funds as delivering a very good ROI (55%) and reducing portfolio risk (51%). However, three out of four respondents agree that hedge funds are difficult to investigate (77%) and that a good fund is difficult to identify (76%). Ultra high net worth respondents appear more likely to include hedge funds in their portfolio saying that hedge funds make up 6% of their portfolio compared to high net worth respondents, who say hedge funds make up only 2% of their portfolio.
“The findings reveal that there is still a limited understanding of hedge funds and other sophisticated products, even among Americans wealthiest households,” said Sevilla-Sacasa. “More importantly, they also highlight the need for continued investor education around alternative investment vehicles and the importance of having unbiased advice.”
Respondents appear pleased with their investment portfolios over the past fiscal year, with 85% claiming that their portfolios met (45%) or exceeded (40%) their expectations during the past fiscal year. A vast majority say that domestic stocks (81%) and real estate (80%) provided the greatest returns on their investments, and had a significant impact in generating wealth.
Although overall economic outlook amongst respondents is generally optimistic, a perception of increasing risk in U.S. stock markets is reflected in an anticipated shift in the distribution of U.S. and international equities within some portfolios. Over half (51%) believe that the U.S. stock market is becoming riskier. A significant proportion (18%) of those respondents who were asked to evaluate the U.S. stock market plan to move out of U.S. stocks, versus only 8% of those who were asked about international stocks, who plan to move out of that asset class.
The top financial worries of respondents are that the U.S. is losing its competitive edge in the world economy (74%) and that the budget deficit will affect the economy over the long-term (74%). These were followed by concerns that the next generation will have a more difficult time financially, cited by 73% of survey respondents. Seventy-two percent of respondents worry that environmental issues will require more government spending and that taxes will rise significantly over the next few years. Another prominent concern is that high taxes will reduce the value of their estate (71%).
This is the 26th U.S. Trust Survey of Affluent Americans. Those surveyed constitute a representative sample of Americans with total investable assets over $5 million. U.S. Trust initiated this series of surveys of the wealthiest Americans in 1993 to better understand and communicate the attitudes of this segment of the U.S. population.