You'd think that the rich folk would be hunkering down in bonds
and cash these days given the fact that just about every economy
around the globe is experiencing a down shift in growth.
And you'd be wrong.
Stocks are the investment of choice these days among the one
percenters, according to a new survey from Fidelity. Direct
investment in U.S. stocks was the top-ranked place folks with at
least $1 million in investable assets (not counting a workplace
401(k) or real estate) put their money in the past year. Bonds
ranked fourth on their buy list.
Even the millionaires with a negative outlook say they plunked
more money into individual stocks last year than cash and
That is pretty much the opposite of what the other 99% have been
up to. Bond funds have been getting the bulk of net new flows into
mutual funds -- the main investment choice in 401(k)s…despite
Long-Term Mutual Fund Flows, Bonds
A couple of takeaways from the one percenters:
CASH OVER BONDS
Certificates of Deposit and other cash vehicles were more
popular with the one percenters than straight up bonds. The truth
is, both pay diddly squat these days.
10 Year Treasury Rate
But the 10-year Treasury packs a ton more risk, If interest
rates were to rise one percentage point in a 12 month period, a
bond with a 10-year duration would see its price fall 10%. And with
the yield currently so low, it's not like the income component is
going to make up much of that decline. With a short-term CD you get
your principal back and can reinvest at those higher rates.
STOCKS ARE A BETTER VALUE
posited in a recent letter to shareholders, if you take a step back
from the daily sturm und drang roiling stock markets and investor
confidence, the long-term outlook for stocks is more compelling
than for bonds.
And it's not like you have to search for the needle in the
haystack to find companies selling at compelling valuations. Just
take a look at S&P 500 big boys such as Apple (
), Wal-Mart (
) and Exxon Mobil (
AAPL PE Ratio
The Fidelity survey didn't ask the millionaires to divulge their
specific stock picks. It's a pretty good bet dividend payers are in
the mix. Fidelity's website lists "dividend yield" as a popular
screen among its customers. No doubt, dividend yields that easily
beat the Treasury payout are an allure. That said, the way to get
your portfolio to a million bucks, or the next million, is to not
get suckered into a pure dividend yield play, and focus on dividend
payers that have a nice habit of
increasing that dividend