Investors Stuck on the Cusp of Becoming Millionaires

The majority of investors on the cusp of being millionaires are woefully lacking investment knowledge and planning, which is preventing them from making that transition up.

The majority of investors on the cusp of being millionaires are woefully lacking investment knowledge and planning, according to a new survey.

Research from Fidelity Investments’ Insights on Advice series found that among those averaging $800,000 in total assets and an average annual household income of $150,000, more than three-quarters did not have a written financial plan.

Calling these investors the “Millionaires of Tomorrow,” Fidelity also discovered that 70% are not very knowledgeable about investing. The research also revealed that the demographics of the two groups are different. Today’s millionaires are more likely to be male and are mostly on the Baby Boomer end of the age spectrum. However, nearly half of the Millionaires of tomorrow are women and land in Gen X/Y.

The study reported that one thing holding these investors back from becoming millionaires is that they play it too safely when investing. While they are on top of debt and household expenditures, they aren’t comfortable taking risks to maximize their returns.

While increasing wealth was the second most important goal for these investors, just 27% want to improve their returns on investments. Nearly half said they are focused on reducing risk, minimizing loss and avoiding market volatility. This, despite the fact that their portfolios already show the second largest asset category to be cash, CDs and money markets.

Furthermore, even though the Millionaires of Tomorrow are highly focused on the long term, they don’t actually have a financial plan to get there. More worryingly, 38% do not intend to create one. And only 17% are planning to get more involved in the future.

“Millionaires of Tomorrow seem to appreciate the importance of saving for retirement now if they are to be well positioned in the future,” Bob Oros, executive vice president, Fidelity Institutional Wealth Services, said in a statement. “But without a plan in place to reach their goals, they may not be taking the necessary steps to save enough for retirement.”

Despite the large amount of assets they have, just half of the Millionaires of Tomorrow are engaging financial advisors to help, even though only 25% have the confidence to handle investing on their own. More than half (53%) were turned off by advisor fees and 46% felt like advisors weren’t interested in investors with smaller assets.

“Financial advisors are well positioned to help Millionaires of Tomorrow evolve into millionaires,” said Oros. “The challenge for advisors will be to prove their value — and the value of taking on risk — to a group that is somewhat unsure of professional advice.”