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When it comes to investing, the rich are (almost) like us

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Adriana Robertson

How different are the wealthy from the rest of us when it comes to what influences their investment decisions?

Less than you might think.

Through a series of surveys of average households and investors with more than $1 million in investable assets, researchers found that both groups share some key considerations and beliefs in their investment choices. Just like ordinary mortals, the wealthy say that their remaining years before retirement, the possibility of getting a nasty disease diagnosis, or being hammered by a Great Depression-like economic disaster rank among their top-10 concerns as they think about investing.

The difference comes with their ease with the market, its risks, and the financial services surrounding it. Where average folks peg distrust of market participants and job income loss worries in their top-10 concerns affecting their investing, the wealthy put those significantly farther down their list.

“The biggest thing that comes out of our surveys, to me, is that the wealthy rely on professional advice a lot more than the representative investor. They also lean on their past experience with the market,” says researcher Adriana Robertson, a professor at the University of Chicago, and former associate professor of law and finance at the University of Toronto. “The representative investor has a lot more anxiety around financial markets.”

Robertson and her co-author James Choi of the Yale School of Management partnered with U.S.-based UBS Wealth Management, which allowed the researchers to piggy-back their questions onto two surveys UBS conducts as part of ongoing surveys of its clients. The questions, answered by nearly 2,500 high-net-worth individuals, included many of those Robertson and Choi used in a previous 2020 research survey that polled a much more general cross-section of investors.

Wealthy investors’ motivations didn’t always square with what leading economic theories and even the market’s historical record suggest are how stocks and markets work. For example, while most wealthy investors believe they can identify a superior stock pick, those same respondents also said value stocks – stocks that are undervalued compared to the company’s fundamentals – are safer, with lower returns than growth stocks, even though that has not always been the case historically.

Millionaire respondents also thought that an active, hands-on investment strategy yields better returns than a more passive strategy, such as investing in an index fund.

“The bulk of the financial advice these days is that it’s often not a great idea to invest in active management,” says Robertson.

Harder to explain was the 15 per cent of wealthy investors who reported investing more than 10 per cent of their assets in a single stock. The most commonly cited reasons for these concentrated holdings were a belief that the stock would yield superior returns and a belief that it would be less risky.

“I guess if I believed that some stock had higher return and lower risk, I would buy a lot of that too,” says Robertson. “But we normally don’t think that those two things should happen at the same time.”

While it’s easy to focus on potentially flawed thinking by people who can better afford to be wrong than the rest of us, the researchers are more interested in understanding how the wealthy think. This can help anyone interested in financial markets, whether they’re regulators, planners, or academics. In a more quirky example, nearly one in five wealthy investors said that ensuring they had cash on hand for everyday expenses was a very or extremely important factor in deciding how much of their assets to put into equities.

“These are folks who almost certainly have a credit card with a pretty high limit,” says Robertson. “It doesn’t mean that their views are wrong. I see it as an indication that we need to have a more holistic view when we think about investing and the way that people invest.”

The study “Millionaires speak: What drives their personal investment decisions?” is forthcoming in the Journal of Financial Economics.


Adriana Robertson was an assistant professor in the faculty of law with a cross-appointment at the Rotman School. She recently joined the faculty of the University of Chicago Law School.