The income gap in America has increased considerably over the last decade, and those with higher incomes have had better access to investment resources and sophisticated investment advice. Even as the broad economic recovery gains momentum, we find that "substantial" and "average" investors, as defined by the UBS/Gallup Index of Investor Optimism*, have different levels of optimism about their personal and economic investment prospects.
The Affluent Optimists
The UBS/Gallup Index of Investor Optimism defines "average" investors as those with a minimum of $10,000 in investable assets but less than $100,000, and "substantial" investors as those with more than $100,000. While the overall Index figure among average investors stood at 39 in September, among substantial investors the Index was more than twice as high (80). Therefore, it is not surprising that substantial investors are more bullish about the equity markets. While 63% of substantial investors believe the stock market will be much higher or somewhat higher a year from now, 52% of average investors say the same. Substantial investors are also more confident that they will meet their investment targets over the next 12 months.
Further evidence of the perception gap: Only 40% of average investors believe the economy is recovering, while 52% of substantial investors say the same.
Overall Portfolio Returns
In analyzing the investment success of substantial investors versus average investors, we find that substantial investors -- despite their higher optimism -- aren't seeing substantially better returns than average investors are. Average investors reported a median overall portfolio return of 4% in the last 12 months, while substantial investors reported median returns of only a point higher, at 5%. Similarly, in projecting their expected returns over the next 12 months, substantial investors are only slightly more bullish than average investors are. Average investors project median portfolio returns of 5% over the next year, while substantial investors expect 7%.
Bottom Line
The UBS/Gallup Index of Investor Optimism finds that substantial investors express considerably more optimism than average investors do, despite rates of return that are about the same for each group. These results suggest that one reason for the differences in levels of optimism is simply that substantial investors have more resources. All other conditions being equal, the more assets investors have, the more optimistic they are.
*Results for the Index of Investor Optimism -- U.S. are based on telephone interviews with a randomly selected U.S. sample of 812 investors, aged 18 and older, with at least $10,000 of investable assets, conducted Sept. 1-14, 2003. For results based on these samples, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ±4 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
