Trust co.'s survey of high-net-worth households uncovers prevalent optimism. Millionaires are taking a mildly hopeful view of equity-market returns in 2007, with most seeing growth of 6% of better for their portfolios this year, according to a Northern Trust survey of 1,002 households with at least $1 million in liquid assets.

"Despite a discernable slowdown in U.S. economic growth in the second half of 2006 and a continuing steady stream of often disconcerting geopolitical headlines, investors continue to embrace risk across equity, fixed income and alternative asset classes with remarkable calm and tenacity," says John Skjervem, CIO of Northern Trust's Personal Financial Services division.

Striking

Northern Trust's Wealth in America 2007, conducted this past fall, shows 62% of millionaires expected market gains of 6% or more. Only 6% said that they expected losses. The optimists pointed to corporate earnings growth and U.S. economy's expansion. Respondents with gloomier views cite geopolitical uncertainly, increasing federal budget and trade deficits, and the dollar's decline.

However they view this year's outcome, millionaires have good reason to think about the stock market. Around 43% of their assets are invested in domestic equities. International equities account for about 10% of their portfolios.

The study also highlights "striking" generational differences in how assets are allocated. As many as 27% of gen-x millionaires -- those between the ages of 27 and 41 -- prefer alternative investments; only for 17% of baby boomers and 11% of those over 61 say the same.

"Alternative asset class investments, particularly hedge funds and private equity, often have lock-up provisions and other limitations on liquidity," Skjervem. "These types of investments also do not typically generate any current income. So it really comes as no surprise to find allocations to alternative assets inversely correlated with age."

Many millionaires attribute their lack of investment in alternatives to product complexity or their own lack of understanding, and 32% did not believe that the returns from alternatives warrant the inherent risks. -FWR

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