Back in the 1950’s, when I was growing up, being a “millionaire” was something to dream about, but also to realize that it was unlikely to happen. In fact, adding to the “mystique” of millionaire status was the TV show (sponsored as I recall by Colgate Palmolive) that ran from the start of 1955 through the middle of 1960 entitled “The Millionaire”. The premise of the show was that an immensely wealthy gentleman, John Beresford Tipton, Jr., enjoyed giving a $1 million check to strangers. Tipton’s executive secretary, Michael Anthony, was charged with responsibility to deliver the check into the proper hands, and the remainder of the show dramatized how that money impacted human life (for better or worse). It is amazing how clearly I can recall some of the feelings I experienced as I watched that show. Even at that young age, I became aware of two obvious facts: 1) Mr. Tipton did not exist, so I should not waste my time imagining Mr. Anthony showing up at my door; 2) lots of money doesn’t ensure health, happiness, or productive relationships (in fact, it is just as likely to get in the way of that last item).
With that introduction, let’s jump to the present day. UBS Wealth Management Americas just published the results from an intriguing poll of some 4,500 affluent persons (owning at least $1 million in investable assets). Contrary to my initial reaction (that such a poll would be largely boring), I found the results surprising. Here are the highlights of some of the more eye-catching poll results:
1) Fully 70% of those with at least that $1 million in hand do not feel they qualify as “wealthy”;
2) Although the “top concern” among members of the group is the “ability to afford health care and long-term care” (27%), their next most pressing concern is financial condition and stability of their grandchildren and children (20%)… trumping their concern regarding their own retirement by 6% (14% were concerned about being able to “afford” retirement);
3) 67% of respondents feel the U.S. economy is improving;
4) 60% of them indicate the long-term economic outlook is bright;
5) The majority of them are sanguine about the possibility that the Federal Reserve could taper quantitative easing and are unlikely to change their investment allocations;
6) In fact, a majority of those polled feel that moving away from easing will stabilize the economy.
So, if $1 million no longer qualifies one as “wealthy”, just how much do these folks think it takes? Evidently (according to the poll) $5 million is the “new threshold” – evidently because these folks perceive that to be the level at which one is freed from any “constraints on activities”! That is an interesting number, because it sets up what strikes me as a quirky contradiction when compared with their generally high concern about inflation.
We all know that banks and money market funds pay next to no interest on deposited funds these days. Meanwhile, even though inflation is low (the government says it ranges between about 1% and 1.5%; most folks I know think it is much higher), every day that one holds $1,000 in cash means $1,000 that has lost “value” because of inflation. Therefore, if one is concerned about inflation, a wise investor needs to have funds invested in some asset that earns more than inflation (even if it is a short-term bond fund or a “bank loan” fund). The exception is that everyone needs three to six months’ of income readily available (in a demand bank account or money fund) to cover emergencies.
So how much cash do these “affluent” (but many not feeling “wealthy”) persons hold in 2013? The survey revealed that the majority of the affluent feel “more confident” about investing if they maintain 20% of their assets in cash! That is astounding! So these folks maintain anywhere between $200,000 and $1 million in cash!
In my imagination, I picture Mr. Tipton (from the TV show) suggesting that they would be wiser to invest most of that into virtually any lower risk asset rather than cash!