Last updated: 10:08 / Wednesday, 16 April 2014
Legg Mason Global Survey

How Millionaires Invest

How Millionaires Invest

According to the new Legg Mason Global Investor Survey of 4,320 affluent investors from 20 countries, the vast majority (80.2%) said they were optimistic about investments over the next twelve months. The majority of respondents said they intend to maintain their current asset allocations; however, greater than one-third (37.1%) said they intend to increase their allocation to equities – more than those increasing their allocation to cash (36.8%) or any other asset class. 

The top five investments that investors believe offer the best opportunity over the next twelve months are:

  1. Domestic stocks
  2. Real estate
  3. Cash
  4. Precious metals including gold
  5. Domestic bonds

The average asset allocation among all respondents globally consists of:

  • 26.5% cash or cash equivalents
  • 24.7% equities
  • 19.9% fixed income
  • 16.8% investment real estate
  • 6.8% non-traditional investments
  • 5.2% other

“Our survey found a level of optimism shared by investors around the world that is very encouraging,” said Matthew Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management. “The fact that more said they are adding equities, and they believe domestic stocks present the best opportunity, says their optimism could translate into a change in investment behavior that may play out in the equities market.”

Income important but income gap remains a challenge

Seven out of ten (71%) investors said that having income generating investments in their portfolio is an important priority. Yet global investors said the income they are generating continues to fall short of their goals.

More specifically, according to the survey the average rate of return global investors seek to achieve on income-producing investments is 9.5%; but the actual rate of return they receive is 6.2%, creating an income gap of 3.3%.

Investing internationally: increasing interest in US and China

More than three-quarters (78.7%) of survey respondents said they invest outside of their home country with an average allocation of 16.5% to international investments.  Those who invest internationally or are likely to do so see the following countries as presenting the best investing opportunities over the next 12 months:

  1. US (51.7%)
  2. China (50.1%)
  3. Emerging markets (45.3%)
  4. Europe excluding UK (35.2%)

Growth, retirement top goals but achieving a challenge

Asked to identify their primary goals of investing, almost three-quarters (73.7%) said “grow my wealth” was their top investment goal, followed by “provide for my own retirement” (61.7%) and “protect my wealth” (58.5%).  However, many investors are not doing very well in making progress toward their goals; many are only doing “somewhat” well.

More specifically:

  • 46.9% admit they are doing not well or only “somewhat” well in achieving their goal to “grow my wealth”
  • 41.9% said they are doing not well or only “somewhat” well at achieving the goal to “provide for my own retirement”
  • 39.5% said they are doing not well or only “somewhat” well at “protecting their wealth”

Only 19.6% said they are doing “extremely well” in their progress toward achieving their goal to “provide for my own retirement.” Further, more than half (56.6%) said they are only “somewhat confident” that they will have enough money to “live the lifestyle they want in retirement,” while 28.3% said they were “very confident.”

“When it comes to achieving your retirement goals, only doing ‘somewhat well’ or being ‘somewhat confident’ is concerning,” Mr. Schiffman said. “Investors around the world all have one thing in common - the need for enough assets to provide for their years in retirement. Granted, different countries have different social programs to help their retiree populations, but in the end, our survey found that investors everywhere can, and should, do more to prepare for their retirement. And that includes millionaires.”

How millionaires invest

Included in this year’s Legg Mason Global Investor survey were the responses of 2,164 millionaires– that is, survey participants with over $1 million in total assets measured in US dollars. According to the survey, the average asset allocation of global millionaires is:

  • 25% cash
  • 21.5% equities
  • 19.6% fixed income
  • 18.7% investment real estate
  • 9.1% non-traditional
  • 6.1% other

More than eight in ten (83.2%) millionaires surveyed said they are optimistic about investments over the next year, and 45% said they plan to increase their allocation to equities in the next 12 months – well above the 33.7% of investors below $1 million who said the same.

Millionaires go global for investments

Millionaires are far more likely to be investing outside of their home country than those with fewer assets. More specifically, 88.7% of global millionaires surveyed said they invest outside of their country, compared to 74.6% of investors with less than $1 million. Furthermore, millionaires also have a larger portion of their assets invested outside of their home countries: 20.4% of their assets versus 14.8% for those with under $1 million. Among those millionaires who do invest internationally or are likely to do so, the countries they believe represent the best investment opportunities over the next 12 months are:

  1. US (53.7%)
  2. Emerging markets (45.3%)
  3. China (44.6%)
  4. Europe ex UK (37.8%)

Income gap smaller as millionaires achieve greater return

As a result of receiving greater income from their portfolios, the income gap millionaires are experiencing is smaller than that of investors around the world with fewer than $1 million in assets.

The average rate of return millionaires seek to achieve from income-producing investments is 9.6%, close to the 9.5% for those with less than $1 million in assets. Millionaires reported the actual rate of return they receive is 7% compared to 5.8% for those with fewer assets. As a result, the income gap for millionaires is 2.6%, while the income gap for investors with fewer assets is 3.7% - a 110 basis point difference.

According to the survey, millionaires are more focused on growing their assets than protecting their assets. Specifically, asked to identify their primary goals of investing, the millionaires said:

  1. Grow my wealth (70.9%)
  2. Protect my wealth (60.5%)
  3. Maintain my current lifestyle later in life (55.4%)
  4. Provide for my own retirement (53.3%)

When it comes to retirement, 45% of millionaires around the world said they are only “somewhat” confident in their “ability to retire at the age they want to” and 18.6% are not confident. Just over one-third (36.5%) said they were very confident. Asked to define the decisions they made that have had “the most positive impact on investing success,” millionaires point to the following top five decisions:

  1. Developed a financial plan (43.9%)
  2. Invested in products other than stocks and bonds (35.4%)
  3. Took cash off the sidelines and invested it (34.8%)
  4. Changed my spending habits so I could save/invest more (32.2%)
  5. Took a more global approach to investing (29.3%)