Rich in America Secrets to Creating and Preserving Wealth PHẦN 3 pot

ers; in other words, they buy stock in whichever industry or company

seems to be doing well at the moment. Running with the herd is

not something limited to amateurs. Many professional investors have

fallen into a similar trap (or believed they could take advantage of the

trends and make momentum their friend). This was the case with tech￾nology stocks, which were the leading pick through the 1990s; since

2000, that has changed radically.

Our surveys also reveal substantial swings in our respondents’

attitudes toward asset allocation. Back in 1993, following a period of

lackluster equity returns, investors felt that the best investment was

municipal bonds, whereas their least favored investment was U.S. gov￾ernment securities. Unfortunately, respondents were also slightly neg￾ative about growth stocks, which would have proven to be been an

excellent investment at the time. However, compared to the years that

followed, their expectations were sensible—87 percent said they would

be content if they could realize a 10 percent average return on their

portfolio that year.

Respondents were also reasonably bullish—55 percent felt that the

next two years would be favorable or very favorable to investors. Only

15 percent felt those years would be unfavorable. By 1995, investors

had turned bearish, with only 31 percent expecting an increase in the

U.S. stock market over the next year. Perhaps because the stock market

indeed did advance, by 1996 investors had become more bullish—57

percent expected the U.S. stock market to increase in value over the

next year. By 1998, investors were beginning to wonder how long the bull

market would last. More than half the respondents (57 percent) felt it

would end within two years (and they were right). Only 15 percent felt

it would continue more than three years (and they were wrong).

Still, respondents remained bullish in 1998 about the U.S. stock

market over the long term. Over the next 10 years, 25 percent of those

surveyed expected to see annualized returns of 11 to 20 percent on

their stock market investments. Another 20 percent expected returns

greater than 20 percent. (The median response for anticipated returns

44 Rich in America

02 Chapter Maurer 6/20/03 4:57 PM Page 44

was 12 percent.) It is clear that the market, currently mired at levels

lower than in 1998, will have to do extraordinarily well for this predic￾tion to come true. At U.S. Trust, we don’t think it will.

By 2001, respondents were coming to terms with the stock mar￾ket’s reversal since mid-2000. Only 8 percent said that their investment

portfolios had not declined in the last year—73 percent said theirs had

declined a great deal or at least some, and 19 percent said slightly. Still,

57 percent said that they were not going to make any changes in their

portfolio because of these declines. Only 2 percent had sold off all of

their stocks or stock mutual funds and had moved their money to safer

investments.

As of 2002, 78 percent of respondents felt that the top investment

sectors were health care, pharmaceuticals, and biotechnology; the

same proportion picked defense and aerospace. Right behind these

sectors were real estate (chosen by 66 percent of respondents) and con￾sumer products (63 percent). Another 55 percent also felt comfortable

with energy and natural resources stocks.

We also asked respondents to tell us how they apportioned the

assets in their portfolio. The breakdown appears in Figure 2.1. Table

2.1 provides an interesting comparison of investment portfolios based

on household net worth. Fifty-seven percent of respondents said that

the recent downturn in the stock market has not caused them to make

any changes in their portfolio. Twenty-two percent saw the downturn

as a buying opportunity, whereas 18 percent sold off some securities

and moved their money into what they considered to be safer invest￾ments.Two percent of respondents simply sold everything in their port￾folio. Of those who sold their stocks, 34 percent transferred their

proceeds to cash, 22 percent invested them in bonds, 20 percent in real

estate, 18 percent in private equity, and 6 percent in foreign stock.

Seventy percent of respondents said that the current volatility

didn’t prompt them to seek additional advice. But of the 30 percent

who did seek such advice, 84 percent consulted a fee-based investment

advisor, 73 percent went to a financial planner, 68 percent saw a stock￾Investments 45

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