Same Wealth, Different Knowledge


Comparisons are a motivating factor in many human endeavors. If success is determined by rank, then comparisons are a necessary task.

But comparisons are made difficult because no two people are exactly alike (with the possible exception of identical twins). And when it comes to comparing portfolios and personal financial details, every conversation about comparisons turns into an apples-and-oranges discussion.

But Spectrem’s new study Portfolio Trends, Expenditures and Perceptions of Providers offers enough details about investors and their investment allocations that some comparisons are fair and useful. One such comparison is in the benefit to investors in being knowledgeable about investing, finance and economics.

Investors with a net worth between $100,000 and $25 million (not including the value of their primary residence) are surveyed in most Spectrem studies, and that wide range of net worth creates odd comparisons. But when those investors are segmented into more manageable net worth ranges, it is easy to see how knowledge tends to create greater investment opportunities for investors.

Among Mass Affluent investors with a net worth between $100,000 and $1 million, those investors who claim to be very knowledgeable about finance and investing claim 42.8 percent of their total assets as investable assets. That percentage drops to 36.9 percent among investors with have very little knowledge about finance, and the difference lies in the percentage each investor has in defined contribution accounts and in their principal residence. In both cases, very knowledgeable investors have less of their assets invested in those two safe and standard investment vehicles.

There is also a huge difference in the percentage of assets invested in insurance and annuities, from 5.3 percent of the very knowledgeable investor’s portfolio to 10.6 percent of those investor who are not very knowledgeable. That appears to be the difference between placing assets in safety vehicles over investing them in riskier products with a higher potential rate of return.

The same pattern holds among Millionaires (those with a net worth between $1 million and $10 million) and Ultra High Net Worth investors (with a net worth between $10 million and $25 million. Among Millionaires, the knowledgeable investors have 59.1 percent of their total assets as investable assets compared to 56.9 percent for the not very knowledgeable investors. Among the wealthiest investors, the difference is more pronounced: 71.3 percent among the most knowledgeable and 66.5 percent among the least knowledgeable.

These are important numbers for advisors to consider. While knowledgeable investors lean less on their advisor, they have more assets available for investing, which in turn creates more opportunities for advisors to provide guidance that can lead to significant returns on investment.

Providing education to investors who need it would seem to be a benefit to all, even if it initially seems to argue against a positive result for advisors.



©2020 Spectrem Group



Keywords: knowledge, education, investors, advisors, wealth, Mass Affluent, Millionaire, Ultra High Net Worth, Spectrem, portfolio