If you want to invest like a millionaire, be boring. Don’t chase exotic stocks. Don’t try to hit home runs in the market.
Millionaires make and grow their money the conservative way: by investing in established brand names from within the market’s largest sectors and by using broadly diversified mutual funds. That’s the overriding message from the CNBC Millionaire Survey.
“They accumulate their wealth by hitting a lot of singles and doubles,” said Tom Wynn, director of affluent research at Spectrem Group, which polled 500 affluent Americans with more than $1 million in investable assets in November for CNBC. “And to do that,” Wynn added, “they need to have a broad base of mutual funds to capture all of the sectors. In many ways, they are traditional with their investments.”
Millionaires are even as “boring” as to use Vanguard Group’s low-cost index investments, which are the most popular choice for market exposure among the affluent investors surveyed by CNBC.
Maintaining wealth is a key driver of the conservative investing ethic. “In order to do that, they will have a big portion in the Fidelitys and Vanguards,” Wynn said.
Millionaires do invest in individual stocks, but Wynn said many millionaires think of this as their “play money” specifically intended for greater risk-taking. Spectrem conducts a separate survey of investors with $25 million or more, and that’s the line of demarcation between the conservative investing club that grows its assets gradually and the real risk takers.
“There you see more of the home-run hitters,” Wynn said. “Entrepreneurs that have made money young by hitting home runs. With many individuals among the mass-affluent millionaires, we’re seeing the people who have accumulated that wealth.”
An Apple a day
When it comes to individual stocks, Apple is the winner, beating out Exxon Mobil, IBM and General Electric—and many other venerable market brands—for equity investing dollars from millionaires.
But an investment in Apple should not necessarily be viewed as a “risk-taking” action, either—especially as the company now pays a hefty dividend and split its shares earlier this year to be more broadly available to investors, and given the extent to which millionaires are favoring the tech sector.
“Technology stocks are becoming what the industrials were at one time in our nation,” Wynn surmised. “We’re so focused on technology, and when you look at the number of Apple products people have … in many ways the tech sector isn’t the glamorous sector it once was; it’s become more of a mainstay, for lack of better word. (The CNBC Miilionaire Survey also found that 75 percent of wealthy households own an Apple product, while half own one to three Apple products. Two percent own 11 or more Apple products.)
Technology, financials and energy are the most popular sectors for investment among millionaires. Materials and consumer discretionary are the least popular sectors for investment from millionaires.