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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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Risk Tolerance: Investors Weigh Returns vs. Stability

Almost four-in-ten of high net worth investors would change their financial advisor if it was perceived that he or she did not appreciate or work in consort with their risk tolerance.

| BY Donald Liebenson

Eight-in-ten Millionaire investors cite smart investing just behind hard work and education as one of the primary factors in their wealth creation. But what is smart? How do wealthy investors balance competing desires for growth and stability?

Six-in-ten Millionaire investors surveyed by Spectrem’s Millionaire Corner consider risk to be key to wealth creation. Not surprisingly, respondents between the ages of 47-54 were significantly more likely (68 percent) to be more aggressive investors. At the same time, more than nine-in-ten (94 percent) of thwealthy investors say that the level of risk is the primary criteria by which they select an investment. This is consistent across all age and wealth levels of those surveyed.

But go figure: When Millionaire investors were asked what in hindsight they wish they had done differently in relation to the financial collapse, only 5 percent said they wished they had invested more conservatively while 25 percent wished they had taken more risk.

A recent surveyed published by Natixis Global Asset Management finds an unrealistic investor mindset in how to reach their investment targets. While 71 percent of investors said that asset growth is increasingly a priority over protecting their principal, 56 percent said they are only willing to take minimal risk to achieve high returns.

“The markets have reached new heights and investors feel generally comfortable about portfolio performance,” observed Natixis CEO John Hailer. “But without a plan that incorporates individual risk and personal benchmarks, the odds are diminished that investors will reach their goals”

According to the Natixdis survey, 76 percent of investors said they only own investments they understand well, but just one-fourth feel that their overall investment knowledge is very strong. When they do make investment decisions, nearly eight-in-ten say they are simply following their gut instinct.

Millionaires surveyed by Millionaire Corner are more circumspect and less prone to emotional investing. Financial knowledge is most highly prized by the highest net worth. More than half of Millionaires surveyed consider financial knowledge to be “extremely important” to them, while nearly  40 percent say it’s important. In contrast, about one-fourth of investors with less than $100,000 say their financial knowledge is “extremely important” while 47 percent say it is “important” and about 23 percent say it is “somewhat important.”

The majority of high net worth investors surveyed for a Spectrem’s Millionaire Corner risk tolerance study (57 percent) identify themselves as moderate when describing their risk tolerance. An equal percentage (20 percent) describes themselves as conservative and aggressive.

Two-thirds of high net worth investors said that their primary concern when faced with a major financial decision was either “usually” or “always” the possible losses. In comparison, 44 percent said the primary factor was either “usually” or “always” the possible gains.

Across risk tolerance levels, investing in anything that would result in the loss of principal is anathema to conservative investors, while for aggressive investors, their primary goal is to significantly grow their assets, the study found. The highest percentage of moderate investors said they were willing to take some risk, but primarily seek to protect their principal.

It is important to these investors who use a financial advisor that both be on the same page. Almost four-in-ten of high net worth investors would change their financial advisor if it was perceived that he or she did not appreciate or work in consort with their risk tolerance, Spectrem's Millionaire Corner research finds.

These advisors can rest easy. Nearly nine-in-ten (86 percent) of Millionaire investors said they feel their advisor understands their tolerance for risk.

About the Author

Donald Liebenson

Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.  

A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.