A new survey of affluent Americans finds that 48% expect the market to perform better in 2018 than it has this year, and 59% expect their gross incomes to rise as well.
However, these well-off investors’ optimism is balanced by deep worries about their financial well-being. Fifty-one percent cited financial security in retirement as their biggest concern, while 46% worried that they had not properly tax-optimized their portfolio and 42% that their portfolio could not withstand a market downturn.
On top of that, uncertainty about how the current political environment will affect their finances is sharply dividing respondents by gender, generation and geography, digital wealth manager Personal Capital said in analyzing results of the survey conducted by ORC International in late November.
The survey sample comprised 1,000 adult respondents who reported total household investable assets of $500,000 or more, excluding their primary residence and employee-sponsored retirement accounts.
The results showed that 55% of men polled believed President Donald Trump’s policies would positively affect the market, versus 42% of women.
A similar divide emerged on whether a Democrat-controlled Congress in 2018 would be better for personal finances, with 57% of women saying it would, versus 44% of men.
On the same question, 58% of Gen Xers and 56% of millennials said a Democratic majority would be better, compared with 43% of baby boomers and 38% of older Americans.
The outcome of next November’s midterm elections will be closely watched. Tuesday’s victory by Doug Jones, a Democrat, in Alabama’s senatorial race is widely seen as a blow to Trump, who pulled out all the stops for losing GOP candidate Roy Moore.
This was the second time in just over a month that Republicans have come up short with the unpopular president at the helm.
“The thrill of the market’s recent performance can blunt reality — periodic market downturns are inevitable,” Personal Capital’s vice president of private client services Michelle Brownstein said in a statement.
Or as the American investor and mutual fund manager Peter Lynch has observed: “You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
Brownstein said a disciplined approach to diversification can reduce risk, steady an investor’s returns and help preserve his or her retirement savings in a downturn.
The survey found that many affluent investors may not be sufficiently diversified. Sixteen percent of respondents overall and 25% of millennials said they held most of their net worth in cash.
The report pointed out this could generate negative net real returns on an ongoing basis, without the opportunity to participate in the upside of a recovery. “When taking inflation into account, holding too much cash is like manufacturing your own market downturn,” Brownstein said.
“Many investors incorrectly believe they are automatically diversified if they hold index ETFs and mutual funds, and as a result their portfolio is in danger.”
Sixty percent of affluent investors in the survey, and 87% of millennials, acknowledged that they had made mistakes in 2017:
- Didn’t save enough
- Paid too much for luxury item(s)
- Paid too much in fees to investment firms/advisors
- Made emotional decisions in buying or selling investment(s)
- Wasn’t diversified enough
- Did not optimize tax strategy
Respondents’ top financial goals for next year are to tax-optimize their investment strategy, cited by 24%; set a goal of preparing for retirement, 19%; and aim to get a handle on financial life, 15%.
Recent research found that the number of people making financial resolutions for 2018 was at an all-time low “because many people are feeling better about their personal financial situation and are generally optimistic about what 2018 will bring.”
With their optimistic income expectations for next year, 97% of respondents had given to charity in 2017, or planned to do so before year-end.
Forty-seven percent of millennials said their donations this year would be $20,000 or more. This compared with 22% of Gen Xers who would be similarly generous, and 4% each of boomers and older Americans.
— Check out Vanguard Issues Its Most Subdued Outlook in a Decade on ThinkAdvisor.