Tags: optimistic | target | funds | wealthy

Money Magazine: Are the Wealthy Overly Optimistic?

By    |   Monday, 05 May 2014 12:45 PM

Pleased with the bull market the last five years, wealthy investors seem to expect more of the same this year. They might be disappointed.

Fifty-seven percent of affluent clients polled by financial consultant deVere Group say they are bullish about the next 12 months, the most since 2007, according Money Magazine.

That could be a bad sign. Optimism is typically the highest when the bull market ends, as Money Magazine notes.

Editor's Note:
18.79% Annual Returns ... for Life?

In another warning signal, trading in speculative penny stocks is higher than any time since 2007, Leuthold Weeden Chief Investment Officer Doug Ramsey tells Money Magazine.

Investors should put their money in target-dated funds to avoid market crashes sparked by panic withdrawals, Money Magazine advises. Target-dated funds enjoyed inflows of $42 billion while stock funds lost $229 billion from panicking investors in 2008.

Morningstar agrees that stock investors are overly optimistic.

Although the London-based FTSE stock market rallied recently, almost half its gain was in a single stock, Astra Zeneca. And equities in other developed markets are not doing as well as expected either. Bonds and commodities are outperforming stock markets in the developed world, which eked out a 0.8 percent return for the first quarter. Commodities were up 6.3 percent, high-yield bonds gained 3 percent and corporate debt was up 1.8 percent. Even the 1 percent gain of U.S. Treasury bonds beat stock returns.

"There was too much optimism at the beginning of this year," Mark Dampier, head of research at stockbrokers Hargreaves Lansdown, tells Morningstar.

"People have been calling the death of the bond market for years, but it hasn’t happened in quite the spectacular way many predicted."

Investors may not appreciate the risks posed by Ukraine, Russ Koesterich,
BlackRock's global chief investment strategist, tells Morningstar. The market has been relatively calm recently partly because of the Federal Reserves loose monetary policy. Another cause is that investors are overly complacent and have not adequately discounted the potential for bad news.

"It is impossible to predict exactly what might happen in Ukraine, but it does seem clear that if the violence continues to escalate and economic sanctions become more stringent, we are likely to see higher stock market volatility and increased selling."

Editor's Note: 18.79% Annual Returns ... for Life?

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Pleased with the bull market the last five years, wealthy investors seem to expect more of the same this year. They might be disappointed.
optimistic, target, funds, wealthy
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2014-45-05
Monday, 05 May 2014 12:45 PM
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