There’s a huge gap between the expectations and behavior of the super-rich and their reality, according to a recent survey of ultra-high-net-worth individuals conducted by SEI and Scorpio Partnership.
The report, “Algorithms of Wealth,” suggests the truly wealthy have a chance to improve their financial position by acting in a strategic manner, which would include building a relationship with a financial advisor, something a majority do not do.
For instance, while the average respondent expected an annual portfolio return of nearly 16%, nearly 60% said they worry about running out of money. The disconnect between seeking high returns (which usually means taking on more risk) and concerns about preserving capital is evidence of the gap.
The disconnect is further evidenced when UHNW individuals profess their expectations that their spending will increase markedly even as they worry about running out of money.
Perhaps most surprising is how far the UHNW individuals feel they have to go to reach their financial goals — they say they need $10.8 million on average.
The UHNW version of the online survey included 275 individuals with an average wealth of $18 million. The broader survey was also conducted online with 1,018 respondents, 510 women and 508 men, all aged 18 or older.
Below are specific ways that the highest-net-worth Americans may be their own worst enemies.
1. Portfolio Growth Expectations
Among the truly wealthy, there’s a noticeable difference in expectations of investment returns depending on their age group.
Those under 40:
- Expect 24% growth in their portfolios in the coming year
Those 40 to 59:
- Expect 14.2% portfolio growth in the coming year
“It is not surprising that investors want to have their cake and eat it, too,” Jeff Ladouceur, director of SEI Private Wealth Management, said in written commentary on these findings. “However, it’s dangerous to become overly focused on double-digit returns at the expense of preservation goals like future lifestyle.”
2. Household Spending