Millionaires & Billionaires

Wealthy investors expect double-digit returns

The Dow is up less than 3 percent for the year. Treasurys are yielding next to nothing. And the stock markets in many countries overseas have tanked.

So why are wealthy investors expecting double-digit returns this year? Are they crazy? Or are they all great investors?

Turns out, they could be a little bit of both.


A trader works on the floor of the New York Stock Exchange.
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A new survey from Spectrem Group finds that nearly half of investors surveyed with $25 million or more in investible assets are expecting returns of 9 percent or more. More than a quarter are expecting returns of at least 11 percent.

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Among younger investors, the expectations are even higher. One in six rich investors under age 55 expect returns of more than 13 percent.

The survey polled 196 individuals in June to July with net worths of $25 million or more. The overall margin of error is 6.97 percentage points.

George Walper, president of Spectrem Group, said wealthy investors generally have been getting better returns than retail investors because they have more money in alternative investments—especially private equity funds, which have generated much stronger returns in recent years.

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The investors surveyed have an average of 29 percent of their investable assets in these alternatives, which is more than the 28 percent they have in stocks.

"I can't imagine they'll get those high returns on their whole portfolio, but on the alternatives side of their portfolio, that's possible," Walper said.

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What's more, the very wealthy can put more of their money into higher-yeilding, riskier investments. According to the survey, 58 percent of respondents said that they set aside some of their earnings for "more speculative, higher risk investments."

So their returns may be higher when markets rise, but they'll fall more when markets decline.

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Yet Walper said the high expectations among today's rich will be difficult for private banks and wealth-management firms to manage. He said advisors will have to do a better job explaining the lower returns and the risks required for faster gains. He also said wealth-management firms are going to have to shift more of their focus on stronger-performing alternative investments rather than traditional stocks and bonds.

"Alternatives are becoming much more important," he said. "That's where clients will look to use advisors in the future."

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