SOMEONE with $100 million has nothing to fear, not even fear itself.
But not long ago, a client with such assets called and asked Bruce Bickel, her wealth adviser at PNC Wealth Management, to put her on a budget.
“She said we’ve never done this before, and we think we should,” said Mr. Bickel, managing director of private foundation management services at PNC. “It’s all relative. Their loss has put them in a fear response.”
Doesn't sound like fear to me, despite what her counselor may claim. Sounds like rationality. The stock market is not a one-way bet. It has larger risks to the downside than many people realize, especially when it gets overvalued and disconnected from fundamentals.
Her response is being mirrored all over the country, and for good reason:
The Boston Consulting Group predicted this week that worldwide wealth would not return to 2007 precrisis levels until 2013. It also said it found that the number of millionaires was down 18 percent and that, across the board, clients of wealth management firms had lost trust in their advisers.
The lack of faith doesn't seem misplaced. For all the crowing going on about returns these days, the collective record of preserving assets by fund managers in 2008 was abysmal.
More from the article:
Even though stock markets have rebounded from their lows this year, wealthy investors have not rushed back in.
Nancy Rooney, head of the Northeast investment business for J.P. Morgan private wealth management, which serves clients with $1 million to $25 million, said she has seen two types of investors become cautious in their investing.
The first have new money and had not experienced serious market swings before. They had been focused on their quarterly gains and largely ignored the risks. Having lost a lot more money than they thought possible, they are struggling with the shock of it.
Or, as Mr. Cochran put it, “Many people thought they were gunslingers.” Now, he said, “They’re not gunslingers any more.” Mr. Holley described the sentiment as a return to “meat and potatoes” investing.
Now, that group is focused more on the risk of an investment than its possible return. One result is they are poring through all the disclosures before investing, and they are not as worried about missing out if they are pressured to invest too quickly.
The second group is older and held wealth longer. They exhibited almost a knee-jerk reaction to the crisis and put a lot of money into cash early on. They continued to stand on the sidelines through the initial rebound. Only now are they looking to invest in safe assets, like preferred bonds secured by United States government obligations.
“We are very gradually working with them,” Ms. Rooney said. “For many of them, it was a loss of confidence in themselves as well as in the markets.”
The advisors talk about this as if it is a bad thing or as if their clients need counseling. It is not. It is RATIONAL. If any segment of the population should stay out of overvalued markets it is retirees and near retirees. Likewise, newbies to stock market investing should stare long and hard at ten year average return tables-- especially those linked to starting valuations (PE ratios) before investing a dime. If they don't conclude that the chances of low or no returns is significant the advisor should show them the door. Ignorance is not a defense to losses.
Read the whole article.
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