Millionaire ranks shrink

According to a survey by the Spectrem Group, the number of US millionaire households dropped 27% in 2008 to level not seen since 2003. There are now 6.7 million people with a net worth exceeding $1 million, down from 9.2 million a year ago. The number of penta-millionaires ($5 million and up) fell 28% to 840,000 nationwide. This is mostly due to the widespread losses among the various asset classes available to millionaires, with stocks, real estate and hedge funds recording lower or even negative returns. Similar losses are apparent among the mass affluent, where a 28% drop in the number of household worth $500,000 or more (excluding their primary residence) now stands at 11.3 million as opposed to 15.7 million in 2007.

From my experience, I can safely infer that the drop in the number of African American millionaires is even more pronounced. This is due to our propensity to invest in limited asset classes and our lack of access to sophisticated alternative forms of investments (i.e hedge funds, private equity, venture capital, commodities, art, antiques, etc...). Many recent black millionaires I have encountered reached that level through real estate investments, and we know how that sector turned out.

It is now a time for us to rethink our relationship with money and our approach to safeguarding it. I tend to come back to alternative investments (alternative being the key word here) as they provide a way for one to diversify a portfolio. When the stock market is up 10-12%, hedge funds typically return twice as much, even after fees. And when the stock market lost 40% over the past year, hedge funds were down only half as much on average. Using a financial formula called the rule of 72, a $1 million dollar investment in an alternative product doubles in value over 3 and 1/2 years at 20%, while it takes 7 years to reach the same result at 10% in the stock market. You do the math!

Most people shy away from that which they do not understand, but that is not an excuse. As a group, we need to get more educated about our options and take advantage of the greater returns that are out there, besides those provided by stocks, bonds or cash.