How would high net worth investors react to a second downgrade of the U.S. credit rating? Discover the latest findings from Millionaire Corner.
How have rumblings of a second downgrade to the U.S. credit rating affected high net worth investors? According to the latest Millionaire Corner research, the majority of Millionaires would change some of their investment strategies in response to a credit rating cut.
Earlier this month Standard and Poor’s Ratings Services reaffirmed its long-term negative outlook for the U.S. credit rating and, in a statement, said it could downgrade the current AA+ long-term rating by 2014. The ratings agency issued the first-ever downgrade to the nation’s once-perfect AAA credit rating in August 2011.
Key factors contributing to this negative outlook are the nation’s debt burden and the waning effectiveness of policymakers and political institutions, according to the S&P statement, which predicts little will change as a result of the 2012 presidential election. (Millionaire Corner research shows the economy is the biggest factor for affluent investors selecting a new president) How would high net worth investors respond to another downgrade?
A large share of high net worth investors do not appear concerned by the prospect, according a Millionaire Corner survey conducted in June, which shows that more than 47 percent of Millionaires would not alter their investment strategies in response to a downgrade. (Millionaire Corner research also shows that investor confidence among Millionaires has reached a five-month low due to concerns on the economy.)
But, a drop in the U.S. credit rating would prompt most high net worth investors to take some sort of action. More than one-third (35 percent) of high net worth investors said they would consult with a financial advisor or other expert to “know what to do” in the event of a downgrade. And, 20 percent said they would invest more conservatively. A small percentage (4 percent) would allocate more assets from domestic to foreign holdings, and a few (3 percent) would buy more Treasury bonds. Close to 2 percent said a downgrade would prompt them to sell their Treasuries.
The first U.S. credit downgrade had a sobering effect on high net worth investors surveyed by Millionaire Corner at the end of 2011. More than 80 percent of investors with a net worth of $5 million to $25 million said they would invest more conservatively as a result of the downgrade, and 10 percent of these high net worth individuals said they would invest more internationally.