What the 1% Are Buying And Why

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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 bonds.

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 falling yields.

Long-Term Mutual Fund Flows, Bonds data by YCharts

A couple of takeaways from the one percenters:


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 data by YCharts

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.


As Oakmark's Bill Nygren 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 ( AAPL ), Wal-Mart ( WMT ) and Exxon Mobil ( XOM ).

AAPL PE Ratio data by YCharts

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 .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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