Do wealthy individuals lose sleep over risk? Whom do they turn to for advice? And how do they walk the line between losing wealth and losing out on an opportunity? The answers are helpful for all wealthy investors coping with risk in a risky world.

To explore these issues, SEI, with Scorpio Partnership, surveyed the attitudes and perceptions of 162 multi-millionaires nationwide in July 2012. Participants included retirees, busi­ness owners and corporate executives, with average assets over $11.8 million.^* This research uncovered insights into an interesting phenomenon related to how wealthy investors balance risk and reward. This “corridor of confidence” defines how they operate when making decisions about wealth.

DISCOVERING THE INVESTOR'S CORRIDOR OF CONFIDENCE
Wealthy investors, like most inves­tors, see the starting point for investment success as ensuring they have the right information and skills (their own or their advisors’) to utilize it. The next step is balancing risk with opportunity. One way to quantify risk is to determine the level of financial assets at which fear dissolves. Call this the “fear mitigation floor.” Attain­ing this number creates a perception of financial security. The survey revealed that individuals feel more financially secure at the point where their wealth doubles.

Naturally, this is a general figure, but the variances are equally revealing. For example, the “fear mitigation floor” for investors under age 50 is almost four times their current net worth, compared with about two times for the 50- to 59-year-old. Conversely, wealthy fami­lies in the 60-plus age bracket need 38 percent growth to dissipate their fears. So discovering this risk-mitigation floor helps identify the effective ceiling of wealthy-investor ambitions.

Research entitled Futurewealth, sponsored by SEI and involving thousands of millionaires worldwide, annually asks how much would be enough to satisfy their needs. ^**The answer: just over three times their current wealth.

Taken together, these data points reveal more about the corridor of con­fidence for the investor. On average, an outcome that doubles wealth will suppress fears of risk, while tripling wealth will make fear disappear alto­gether. So, while investors should not expect to double their assets with every financial decision, they do need to decide on their own confidence cor­ridor, analyze their own behavior and ascertain whether their expectations are realistic in today’s environment. Quantitative and qualitative inputs, of course, are essential, as is defin­ing one’s advisor’s role in terms that provide decision support vs. limited investment execution.

*About the sample: A total of 162 ultra high net worth investors took the survey. Respondents were drawn from independent sources. Some 56 percent self-classified as entrepreneurs. The average annual income was $375,000, with individuals worth more than $10 million having an average annual income of close to $1 million. The average age was 53. ^**About Futurewealth: Futurewealth is a global research program that examines investment requirements of millionaires. Conducted by Scorpio Partnership. To date, it has surveyed nearly 10,000 individuals with an average net worth of $3.5 million.
SEI Private Wealth Management, formerly SEI Wealth Network, is an umbrella name for various life and wealth services provided through SEI Investments Management Corporation, a registered investment advisor. There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. Diversification may not protect against market risk.