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How the rich view market risk

By Judy Martel · Bankrate.com
Monday, March 31, 2014
Posted: 6 am ET

Few who have made a fortune want to risk losing it. Yet the rich also know that post-recession, investing in the bull stock market has been one of the major reasons they're even richer today.

Make sure your asset allocation fits your long-term goals.

Make sure your asset allocation fits your long-term goals.

The risk versus reward dilemma is top of mind for the wealthy, with 47 percent of them saying in a recent survey that the biggest factor in making investment decisions is their risk tolerance. Only 14 percent cited a need for growth.

The survey, by Wells Fargo Private Bank, revealed that 28 percent of investors with $500,000 or more of investable assets made "major" changes to their portfolios during the bear market in 2008 and 2009; 41 percent of those with more than $3 million did so. Those who made changes mostly sought safe havens, with 48 percent saying they sold equities and 44 percent saying they increased their holdings in cash or purchased bonds.

Dean Junkans, chief investment officer for Wells Fargo Private Bank, worries about investors who may be reacting to fear rather than sound investing principles. "Investors' confidence needs to be rooted in a conviction that they're taking appropriate risks to meet their long-term goals," he said in a release. "Without that conviction, emotional investing and reacting to the daily news are a road to failure."

Safety brings its own risks

Junkans added the S&P 500's total return has gained more than 200 percent since hitting bottom on March 9, 2009 and investors who remained on the sidelines of the market have missed out on tremendous growth. He also noted that those who moved into safer investments seem to be complacent about interest rate risk and haven't adjusted their investment time horizons to take into account the growth they'll need to fund their future.

"Only 13 percent of those surveyed said longer life spans have caused them to be more aggressive, while 87 percent are either more conservative or have not made any changes," he said. "Investors need to gain a better understanding of their future needs."

Want a leg up on investing decisions? Here are four ways to get the most from quarterly investment calls.

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