You'd think that even in a recession, millionaires would feel pretty comfortable. But a recent survey shows the opposite is true.
Fidelity Investments recently surveyed more than 1,000 households that were worth $1 million or more to find out what many American millionaires are thinking. Here are their top three pieces of advice for us investors in this market:
- Stay the course.
- Remain calm and be optimistic.
- Cut back on spending and save more.
That's great advice -- which isn't surprising, because they're millionaires. They probably do know a thing or two about how to make money.
For starters, once we have settled on an investing philosophy we believe in and are comfortable with, why throw it away just because the market lurches? Ideally, our approach should be one that fits all kinds of markets. If you believe in buying great stocks and holding for the long term, why suddenly change your tune just because your NVIDIA (Nasdaq: NVDA ) shares fell 76% in 2008 or your PepsiCo (NYSE: PEP ) shares dropped 26% last year? As long as you still believe in their managements and their futures, holding on may be the right thing to do.
In addition, calmness is critical. Panicking and making rash decisions can only hurt you. If you sell when you shouldn't, you may generate an unnecessary capital gain on which you'll be taxed. Or you'll face a loss, walking away with less money than you put in. Sometimes selling is the right thing to do, but make a calm and reasoned decision before you do.
Up, up, up ...
As for optimism, there's one thing to remember. Over many decades our stock market's trend has been clear: It has gone up. Sure, it does crash on occasion, as we were just reminded of, but that only makes today's stock market seem more promising. If most stocks are cheaper now, that means they're more of a bargain now than they were before the crash.
Finally, reining in spending and saving more makes lots of sense, especially with the market down so much. After all, we may be looking right at a once-in-a-lifetime investing opportunity. For instance, many stocks are paying healthy dividends right now. Here are some stocks rated four or five stars in our Motley Fool CAPS community that have solid dividend yields:
|
Company
|
CAPS rating (out of five)
|
Dividend Yield
|
|
Valero Energy (NYSE: VLO )
|
*****
|
2.7%
|
|
Colgate-Palmolive (NYSE: CL )
|
****
|
2.7%
|
|
Nokia (NYSE: NOK )
|
****
|
3.4%
|
|
Eli Lilly (NYSE: LLY )
|
****
|
5.7%
|
|
AT&T (NYSE: T )
|
****
|
6.6%
|
Data: Motley Fool CAPS.
Here's a compelling stat: It seems that those millionaires who stayed the course after an earlier market drop or took the opportunity to invest more -- perhaps believing that recessions are great times to buy -- have average asset levels that are about $1 million higher than peers who shifted funds into more conservative investments.
Skittish millionaires
Of course, it's rare when all people in a group think alike, and millionaires are no exception. The Fidelity survey found that in this market, plenty of millionaires are not staying calm and optimistic. The households surveyed had an average of $3.5 million in assets available for investment and about $300,000 in annual income, yet 46% don't think they're rich.
The millionaires were asked where they expected the best returns would come from over the next year, and 34% voiced the most confidence in bonds, CDs, and money market funds, while 28% believed in stocks. About a third of all the millionaires plan to move more money into these fixed-income assets, while another third plan to park more in stocks. That makes me shake my head a little, because for one thing, it seems rather silly to have any firm idea of what the markets will do in the coming year. No one can really know. Meanwhile, over most long periods, stocks have outperformed bonds. And then we have our recent stock market meltdown, which should have made most stocks more attractive.
The millionaires seemed more sensible when looking out over the next five years -- 44% favored stocks for that period, with just 6% thinking that fixed-income investments will carry the day.
What to do
We can learn some useful lessons from those who've succeeded with their finances. Although their responses show that they're not immune to fear, the millionaires in this survey have great advice that we'd all do well to follow.
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