Ultra-Wealthy Are Shunning Stocks
Wealthy investors are shying away from U.S. stocks and putting more money into private companies, real estate and commodities, according to a study.
The Institute for Private Investors, a wealth networking group owned by Campden Wealth, polled families with at least $30 million in investable assets. IPI found that the wealthy are shifting away from U.S. stocks in the search of safety and yield.
According to the survey, 55 percent of IPI families are looking to increase direct investments in private companies. Nearly half plan to add to their holdings of commodities this year, and 45 percent of respondents are putting more money into real estate.
When it comes to stocks, the ultra-wealthy are putting more money overseas. Fully 44 percent plan to increase their holdings of global stocks.
According to IPI, the moves are part of a broader shift, with the wealthy looking for hard assets rather than more speculative financial investments. “We are seeing a general movement toward owning real assets, and backing companies with real businesses, including startups," said Mindy Rosenthal, executive director of IPI.
Should everyday investors follow the lead of the $30-million-plus crowd?
Not necessarily. Buying a private company, for instance, isn’t in the cards for most investors saving for retirement. Acquiring a business often requires millions of dollars in capital. While the firm may generate income, it could also take years, or even decades, to sell or monetize. Wealthy investors don’t mind tying up their capital for such a long time as long as it’s holding value and generating income. But most investors don’t have the luxury of such a long time horizon.
What’s more, wealthy investors haven’t always been right when it comes to the stock market. Some studies show they were late getting out of the market pre-2008, and late coming back in before the rebound in 2009.
But there is one reason we should care about the investing patterns of the rich: they set the tone for the broader market. With the one percent owning more than 50 percent of the individually held stocks in the U.S., their lack of confidence in stocks can only make it harder for the market to move higher.
Do you think everyday investors should mimic the investing patterns of the wealthy?
-By CNBC's Robert Frank
Follow Robert Frank on Twitter: @robtfrank