Editor’s note: Sue W. Cole is the regional chief executive officer of the Mid-Atlantic Region of U.S. Trust Company, N.A.Every year, my firm surveys a representative sample of the top 1 percent wealthiest Americans about their opinions on a variety of issues. As a wealth management company serving affluent individuals, families and institutions, we like to keep a finger on the pulse of this segment of the population. Their concerns and opinions about the economy, we think, are a bellwether for our clients and others interested in seeing their investments grow.
We learn some interesting things. For example, the popular stereotype of inherited wealth and a lavish lifestyle is generally unfounded. Instead, the affluent’s habits come closer to those described in Thomas Stanley and William Danko’s “The Millionaire Next Door.” “It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes,” they write. “Wealth is more often the result of a lifestyle of hard work, perseverance, planning and, most of all, self-discipline.”
Sixty-three percent of our respondents own only one home, and more than half say it’s worth less than $500,000 and the average value of their car is less than $30,000. Only 8 percent of their after-tax income goes for vacations and travel, while 22 percent goes into savings and 8 percent to charity.
Survey shows greater concern
This year, more than last, the affluent are anxious. Eighty-six percent worry that terrorism will have a negative effect on the economy and the securities markets–up from 76 percent last year. In addition, 82 percent worry that their children will have a harder time financially than they have had–up from 73 percent. And 77 percent worry that there are greater threats to the personal security of their family and friends since 9/11…up from 63 percent a year ago.
Although they no longer see the bear market as a major concern, our respondents say it has caused them to scale back their retirement plans. Forty-eight percent said its effects will force them to live on a lower retirement income. One-third of those not already retired say they’ll have to delay their retirement, and more than half said they’ll work at least five years longer than planned.
Affluent Americans take seriously the recent scandals in corporate boardrooms and on Wall Street. More than 80 percent believe there is an inherent conflict of interest in a firm that provides investment banking services to corporations and investment advice to individuals. Seventy-nine percent question both the reliability of corporate financial statements and the recommendations of equity analysts. Overwhelmingly, they call for measures that would curb such abuses: increased vigilance by corporate boards, high-profile prosecutions and more stringent laws and regulations governing accounting firms, public corporations and Wall Street.
But optimism remains strong
Despite their increased anxiety about the world situation and the business community’s ethical shortcomings, our respondents are optimistic about the stock market. The U.S. Trust Affluent Investor Index, a formula based on the affluent’s projection of market returns and their assessment of market risk, rose this year from 58 to 62.
Sixty-nine percent said their portfolios have increased in value over the past year, and they believe the U.S. stock market is slightly less risky than it was a year ago. They project annualized returns for the stock market of 8 percent over the next year and 10 percent over the next three to 10 years.
They see the most promising sectors for investment in the coming year as healthcare, pharmaceuticals and biotech, 72 percent; defense and aerospace, 71 percent; consumer products, 57 percent; and real estate, 55 percent. Twenty-one percent say they are investing more in the stock market. They also plan to increase their spending. More than half said that within the next year they will take an expensive vacation, make capital improvements to their homes or purchase big-ticket items such as furniture or electronics.
Clearly, these investors believe the bear market is behind us and expect steady gains from the stock market in the period just ahead. We share their optimism and are encouraging our clients to put aside their own fears of today’s geopolitical situation and take advantage of the investment opportunities emerging in the current economic recovery. Though we live in a dangerous world, this year it is also a world of greater promise.
Sue W. Cole is the regional chief executive officer of the Mid-Atlantic Region of U.S. Trust Company, N.A.
In 1993, U.S. Trust initiated a series of surveys of the wealthiest Americans to better understand and communicate the attitudes of this segment of the U.S. population. This is the 22nd U.S. Trust Survey of Affluent Americans. Those surveyed constitute the top 1% wealthiest Americans, with either an adjusted gross income of more than $325,000 annually or a net worth greater than $5.9 million.
U.S. Trust Corporation (member FDIC) is a wholly- owned subsidiary of The Charles Schwab Corporation.