A trader blows chewing gum during the opening bell at the New York Stock Exchange on August 1, 2019 in New York City.
Johannes Eisele | AFP | Getty Images
If the market is in an everything bubble, wealthy Americans go into 2022 saying they really don’t want much more – of anything, according to a recent CNBC millionaires poll.
Sentiment among wealthy investors is still trending upbeat, albeit flagging, with millionaires anticipating higher interest and tax rates in 2022. 41 percent of millionaires say the economy will get stronger in the next year, up from 35 percent who say it will weaken the last year CNBC millionaires survey. A little more than half, or 52%, of millionaires expect it S&P 500 Finish 2022 with a profit of 5% or more.
But another result of the survey is the most revealing. It signals a weakening of excitement and a waning general risk appetite, even though the market has survived recent Covid-Omicron and Fed fears that the S&P 500 is setting a new record and the Dow Jones industry average stay close to the highest level ever.
Twice a year, the CNBC Millionaire Survey asks investors in which key asset classes they want to increase their exposure over the next year. Investor appetite for all types of investments is now lower than it was in the spring 2021 survey. The percentage of millionaires who say they will increase their investments has declined across all asset classes, including stocks, investment property, alternative investments, international investments and precious metals.
For the CNBC Millionaire Survey, Spectrem Group surveyed 750 Americans with investable wealth of $ 1 million in October and November.
Can’t take any more risks, can’t get out of the market
“The market is high and people are nervous,” said Lew Altfest, CEO of Altfest Personal Wealth Management. “Our customers are scared, but none of them are about to get off,” he said. “You don’t have the courage to withdraw.”
“There’s not much more you can risk with fresh dollars,” said Doug Boneparth, president of Bone Fide Wealth. “What are you going to do? Ditch all of your large caps and invest in all emerging market stocks? Nobody does.”
Thirteen years after a bull market and after a sharp spike in volatility last year resolved by government incentives and the Fed to print more money, “there is limited scope to move up, so maybe take your foot off the pedal here.” , “Said Boneparth.
That doesn’t mean market conditions that would amount to a significant reduction in risk, but it makes sense for people to step back and re-evaluate their portfolios. “It’s been a hell of a ride and the willingness to take risks has only increased in the not too distant past,” he added.
Inflation, the Fed and the Economy 2022
Even if the rich are less avid buyers of stocks, they are buyers of goods and the economy will be fine – and with it corporate profits – as long as they continue to buy everything outside of stocks at higher prices, Altfest said. When people tire of spending freely, it matters more to the economy and the market than when the rich cut back risk appetite across all asset classes, he said.
After two hugely positive years for the market in 2020 and 2021, investors are digesting the information on inflation and whether that means they should expect slower equity growth in the near future.
“These two things set the table: how much more risk can you take?” said Boneparth.
“The shyness is very evident at all of our meetings,” said Michael Sonnenfeldt, founder and chairman of Tiger 21, a network for wealthy investors.
But inflation is not an immediate threat to the rich. “If you’re worth $ 10 million and living on $ 200,000 a year, even if you’re 6% inflation, inflation won’t change your lifestyle,” said Sonnenfeldt. For the rich, fear of inflation does not mean the less fortunate in society are justified in worrying about food budgets or buying a new car. But one cannot ignore the fact that inflation can hurt the value of their assets, Sonnenfeldt said, and that makes it harder to weigh inflation against investments after investors have benefited from such an extraordinary market.
“Assets have risen more than inflation this year, more than they eroded … but next year could be a double blow where if inflation grows and the market is flat you see a loss in value,” he said. “At least there was no need to panic this year and wealth custodians grew assets faster than inflation as the Fed flooded the market. I don’t know many people in a phase of wealth preservation who haven’t outperformed inflation this year. “.”
“People are still digesting Covid and the elections, and that’s kind of a wait and see,” said Tom Wynn, director of research for the Spectrem Group. “People have to see what happens to inflation and taxes, and no one takes a position one way or another that things are much worse or better, that’s my opinion.”
Big stocks and boomers
Altfest said he wouldn’t advise an investor to time the market to be all or not at all, but he has told investors sitting on huge gains like Microsoft that it is time to sell some of their holdings. This is not a conversation that always went well, he said.
“A lot of people say, ‘The market has done me good,’ and that is especially true for people with growth stocks,” said Altfest, adding that much of the recent profits in the S&P 500 came from four technology companies, including Microsoft.
When investors turn back to core stock analysis, “you can’t break away from price-to-earnings multiples even if corporate earnings are growing fast. They can’t grow forever and the P / E ratios” are very high, “Altfest said.
Pressure between the title winners, who have done so well but worry about future economic and market developments, puts investors in what Alftest describes as “barely optimistic about stocks”.
Mitch Goldberg, president of the investment advisory firm ClientFirst Strategy, said every time someone told an investor to “take a little off the table at Apple and Microsoft … someday right. But we don’t know when. “
Risk the right way
An investor who hasn’t changed their portfolio this year will now hold more stocks by simply staying stable, given the recent bull market in equities and weak bond market returns, Goldberg said. And many investors are not quick to realign their equilibrium after appreciation in certain asset classes, which reinforces the process of increasing exposure, in this case to stocks. And Goldberg said for most investors that they will stick to that stance.
“There is no alternative,” he said. “From what I see, investors are more scared, but they don’t act on them,” he said. “To me, that’s a form of complacency. It’s like waiting for a bell to ring and they’ll be able to get out before the market fills up.”
Older investors who do not need market money to meet immediate needs, including baby boomers who have done well in the equity space and remain in the market time horizon for at least several years, do not need to reduce their overall equity exposure, but should do so by reducing the composition of the stocks in the Think about ownership, said Goldberg. While they have stayed away from the meme stocks and the pandemic stocks, they have also added the value of stocks in other parts of the market like consumer staples and dividend stocks and major technology leaders.
Taking risk off the table doesn’t have to mean making major changes to the overall portfolio asset allocation plan.
Boneparth said, in his view, “taking risk off the table” can mean going from a 90% to 10% stock split to 80% to 20%.
Downshifting from “aggressive to just plain aggressive” shouldn’t make an investor jump out of his seat, he said.
Many investors make the mistake of withdrawing completely from a market, Boneparth said, and that “smart money” approach tends to be a loser. But, he said, “those are returns so far above their historical means that it really always asks, ‘When is that right?'”
Let’s not get out of hand. Let’s context to less risk, not drastic change, not even decrease, just adding, ”said Boneparth.