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Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

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Long Bonds and the Wealthy Investor

Investor sentiment is increasing, but there is still a hefty dose of skepticism regarding whether the recovery is for real.

| BY Catherine McBreen

On Friday, investors cycled out of long corporate bonds, selling a net $93.5 million in long, high-quality corporate bonds, according to the Wall Street Journal.  Instead, they bought a net $130 million in short high-quality corporate bonds and $105 million of intermediate high quality bonds.  Why?  Experts believe the jobs report caused the movement with many investors looking ahead to the Federal Reserve slowing its bond buying program.

It’s most likely, however, that institutional managers are primarily responsible for movement in the bond market, with individual investors lagging behind.  Corporate bonds are owned by about 40 percent of households with over $5 million of net worth, according to research conducted by Spectrem's Millionaire Corner and about 44 percent of these households plan on continuing to invest in bonds throughout 2013.  This bond investment, however, is lower than the over 70 percent of wealthy households that intend on increasing their holdings of equities in 2013.  The average portfolio of a household with $5 million of net worth (not including the value of the primary residence) averages $717,000 of municipal bonds, $302,000 of corporate bonds and over $1.1 million of individual equities.

Approximately the same percentage of investors owned corporate bonds in 2008, but the average value of the portfolios was much higher.  In December of 2008, 42 percent of households with over $5 million of net worth own corporate bonds with an average value of $742,000.  Municipal bond ownership average $1.4 million at that time and equities in the portfolio averaged $1.7 million.  So where have the assets gone?  A significant portion  is still being held in cash deposits and money market accounts.  Another portion has gone to hedge funds and other alternatives as wealthy investors seek to balance return against security.

For individual investors, any change in their bond portfolios will be dependent upon the advice of their financial advisor.  Over 75 percent of wealthy households use an advisor to some extent.  Regardless of whether they are totally or partially dependent on an advisor, it is likely that current decisions regarding bonds may require a little advice and analysis from their professional advisor.  Whether the advisor feels Bernanke will or won’t slow down the quantitative easing will be the critical factor underlying that advisor’s recommendations.

And how do wealthy investors feel?  Millionaire Corner research show that investor sentiment is increasing, but there is still a hefty dose of skepticism regarding whether the recovery is for real.  Most investors believe that the unemployment rate needs to be below 7 percent to validate the recovery, and a sizeable portion of investors are holding out for a 5 percent unemployment rate.  The skepticism may actually be good for the bond market.  The real question, however, is how Chairman Bernanke feels.

About the Author

Catherine McBreen

Catherine S. McBreen is President of Millionaire Corner.  McBreen plans and develops content for Millionaire Corner.  Catherine balances editorial content to meet the informational needs of both new and seasoned investors.  She designs special monthly surveys on topical issues affecting the economic environment.

McBreen has a B.S. in speech communications from Northwestern University and a J.D. from DePail University College of Law.  She is a member of the American Bar Association, the Illinois Bar Association, and the Chicago Bar Association.

Well-known for her expertise in the affluent and retirement arenas, McBreen is a frequent speaker at industry conferences.  She has been quoted widely by the financial media, including The Financial Times, The Wall Street Journal, Research, Private Asset Management, On Wall Street, Reuters, Bloomberg News, The Dow Jones Newswires and Worth.  Cathy has appeared as a guest on CNBC Closing Bell, First Business Morning News, Neal Cavuto at Fox Business News, ABC and CBS radio.

McBreen is co-author with Spectrem President George H. Walper, Jr. of the book "Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families" (Portfolio, January 2008)

Catherine is the mother of four and is involved in many school and community events.