A State of Mind

The mindset of Australia’s more affluent individuals has shifted markedly since the now-seemingly distant bullish days of last spring.

The risk tolerance of the country’s high net worth individuals has plummeted towards ultra-conservatism over the period, reflecting the aggregate 25% drop in domestic equities since October’s share market peak.

The credit crunch has left many investors, HNW and otherwise, running for cover as even traditionally defensive stocks (particularly financials) have taken a pounding as a consequence of the liquidity crisis afflicting the banking sector globally.

HNW Shifting Risk Tolerance

There has been a fourfold increase in the proportion of HNWs who are now demonstrating an inclination to being risk averse compared to October 2007.

Back then 11.5% of Australia’s most affluent individuals could be classed risk averse to some degree – this has now jumped to 46.8%.

Back in October 5.7% of all HNWs self-assessed themselves as being extremely risk inclined – this has dropped to less than 1 in 100 now.

This is reflected in the fact more than half (51.3%) of HNWs now see the best investment opportunities in defensive assets.

This was split as follows:

21.7% see cash as the best option, 12.1% state fixed interest, while 17.5% said term deposits now offer the best returns opportunities.

Around 10% of HNW noted to being neither risk averse or risk inclined, instead assessing themselves as neutral.

9.5% of HNWs said they were neutral when the market was at its peak in 2007, while this figure is now 11.1%.