For the Rich, Diamonds are the New Stocks
New studies show that the wealthy are pulling back from stocks and stashing more of their money into real estate, art and even diamonds.
A recent survey from Harrison Group and American Express Publishing found that the wealthy have cut back their allocations to stocks dramatically since the economic crisis. In 2007, the top one-percenters (by income) invested 76 percent of their savings into stocks and financial investments. Now, it’s closer to 46 percent.
That may not sound like an important drop. But the wealthiest one percent own more than half of the individually held stocks in the U.S. When they stop buying, it matters.
All that cash on the sidelines may continue to grow. Harrison Group’s Jim Taylor predicts that total savings stashed away by the affluent could grow to $12 trillion by 2014, about double today’s levels.
A second study from Spectrem Group finds that millionaires are also pessimistic about stocks. The survey found that investor confidence among those with $1 million or more in investible assets dropped in April for the first time since last summer, when the U.S. debt crisis and Euro crisis started weighing on markets.
The main concerns for millionaire investors were (in order) the prolonged economic downturn, the political environment and national debt.
Investors with $5 million or more have become the most conservative. The Spectrem study showed that 84 percent of the $5 million-plus crowd is now taking a moderate or conservative investment posture. That compares with 79 percent in 2009 – in the middle of the economic crisis.
So what are the wealthy doing with their money?
Increasingly, they’re looking for hard assets, collectibles and real-estate. Just consider the headlines from the past week. Two trophy apartments in Manhattan sold for more than $50 million.
Yesterday, Sotheby’s sold $108 million worth of collectible jewelry in Geneva. The chart-topper was the $9.7 million sale of the Beau Sancy diamond, a 34.98 carat diamond that was first worn by Marie de Medici in 1610 at her coronation as Queen Consort of Henry IV.
Wealth experts say that while diamonds, mansions, art and wine may not appreciate as quickly as stocks, these less liquid assets are also unlikely to crash in value as quickly. And wearing the Beau Sancy or looking at a Picasso on the wall is a lot more pleasurable than watching the ticker.
Where do you think the wealthy will put their money this year?
-By CNBC's Robert Frank
Follow Robert Frank on Twitter: @robtfrank