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The number of multimillionaires around the world continues to grow. But this year’s raging bear market may put a halt to that — as they’re loaded up with assets plummeting in value.
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Millionaires invested more than three-quarters of their money in stock, bonds, real estate and alternative investments, says the just-released World Wealth Report from Capgemini Research Institute. All four of these assets types are down an average of more than 15% over the past year. The only asset not falling apart, cash and equivalents, is only a 24% weight in multimillionaires’ portfolios. That’s down from 27% three years ago.
In many ways, high net worth individuals (HNWI) walked right into the 2022 stock and bond market meltdown. Few made adjustments ahead of the 2022 bear market in the S&P 500. Investors now have lost nearly $12 trillion just this year and just from stocks, says Wilshire Associates. No other asset classes are helping much, either, other than cash.
“Covid-19 had minimal impact on global HNWI asset class selection in 2021. Investors adopted a wait-and-watch approach and a positive mindset as growth allocation (equities and alternative investments) remained on par with January 2020 at about 43% to 44%,” says Capgemini report.
Ranks Of Rich Rising
It had been a great time to be a millionaire, until January.
The number of high net worth individuals in the world jumped 7.8% in 2021, the latest data available from Capgemini. And their collective wealth rose 8%, lifted mainly by buoyant global stock markets. High net worth individuals include “millionaires next door” with $1 to $5 million, midtier millionaires with $5 million to $30 million and ultrahigh net worth people with $30 million or more.
North America was home to the most new wealth in 2021. The high net worth population in North America rose 13.2% as wealth jumped nearly 14%. And it’s no surprise why. The Vanguard Total Stock Market ETF (VTI) surged 24% in 2021, more than double the typical annual return. That outsized gain lined the portfolios of investors. And even the Vanguard Total Bond Market ETF (BND), a proxy of fixed income portfolios, sagged just 3.9%.
But that same power that made wealth is taking it away now. And fast.
What’s Hurting Millionaires The Most? Not Just S&P 500
It’s tempting to blame the plunging stock market and S&P 500 for millionaires’ financial pain this year. But that’s only part of the story.
Yes, the Vanguard Total Stock Market ETF is down 15.6% over the past 12 months. Millionaires put 29% of their portfolio in stocks. That, though, is not the hardest hit portion of most millionaires’ portfolios on a percentage decline basis. The 15% of their portfolios in real estate is down even more, 17.2%, in that time.
Perhaps more noteworthy, though, is that the part of millionaires’ portfolios designed to buffer them from bear markets isn’t working. Millionaires put 18% of their portfolios in bonds. And yet, the aggregate bond market is down more than 14% in a year’s time. That’s a rare implosion for the bond market many wealthy people don’t expect.
The means cash is the only relative safe spot, for now, for millionaires. The JPMorgan Ultra-Short Income ETF (JPST) is only down 1.3% over the past 12 months. That makes it the rare safe haven.
“However, yet to be seen is whether market corrections and geopolitical crises will push HNWIs to restructure their portfolios over time. So, again, let’s keep our eyes on the markets,” said the Capgemini report.
One thing’s for sure now, though. Some millionaires probably wished they put more than 24% of their portfolio in cash. It’s too late for that now.
Where Millionaires Put Their Money
| Asset Class | 2022 % Allocation | Representative ETF | Symbol | 1-year % ch. | Yield |
|---|---|---|---|---|---|
| Stock | 29% | Vanguard Total Stock Market ETF | (VTI) | -15.6% | 1.6% |
| Cash, Equivs. | 24 | JPMorgan Ultra-Short Income ETF | (JPST) | -1.3 | 0.7 |
| Fixed Income | 18 | Vanguard Total Bond Market ETF | (BND) | -14.4 | 2.4 |
| Real Estate | 15 | Vanguard Real Estate ETF | (VNQ) | -17.2 | 3.4 |
| Alternatives | 14 | IQ Hedge Multi-Strategy Tracker ETF | (QAI) | -12.0 | 0.3 |
Sources: IBD, Capgemini, S&P Global Market Intelligence. The Capgemini 2022 Global HNW Insights Survey queried 2,973 HNWIs across 24 major wealth markets in North America, Latin America, Europe, and the Asia-Pacific region.
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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