WEST PALM BEACH, FL (www.hedgeco.net) – A new study conducted by Northern Trust shows that affluent investors are not adequately diversified in their investment portfolios. The study also revealedthat a �substantial number of millionaires have overly-optimistic expectations about the performance of their investment portfolios, more than half are inadequately diversified across asset classes,and most don’t plan on making any changes to their current asset allocations in 2005.� The Northern Trust national survey included 1,235 millionaires with more than 1 million of investable assets,representing about $7.3 billion in total investable assets. Northern Trust Chief Investment Officer, Orie Dudley said, “Surprisingly, there seems to be a disconnect between what successful peoplethink their portfolio will return and what their portfolio can deliver given its current asset allocation.”
The survey group�s �expectations of investment performance varied somewhat by occupation, but not by age or amount of investable assets, for example, surveyed business owners are the most likely to be overly-optimistic about investment performance, as nearly half (47 percent) expect the performance of their portfolios will be two percentage points or above what is realistic, given the analysis. Of these respondents, 26 percent said they expect returns will be five percentage points or greater than what is realistic.�
According to the survey, �more than half (59 percent) of millionaire investors surveyed are inadequately diversified across four broad asset classes: equities, fixed income, cash and alternative investments, which includes real estate, hedge funds and private equity. Among this group, investors with no exposure to alternative investments accounted for 78 percent of the total.�
Dudley said, “Even the most sophisticated, experienced investors don’t always appreciate the impact of asset allocation on investment performance.” He added, “We encourage all investors to re-balance their portfolios periodically to maintain a well-diversified portfolio. The ultimate goal of an asset allocation strategy should be to build an efficient portfolio-one that will provide investors with the greatest possible return for the lowest risk based on their goals, timeframe and comfort level as well as the tax implications of various investment strategies.”
Dudley added, “Of course, adding alternative investments, including hedge funds and private equity, may not be appropriate for all millionaire investors and they should seek the advice of investment experts. Often investors can diversify their portfolios by changing the line up of equities, perhaps adding different investment styles and classes of equities appropriate to their investment parameters.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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