According to a Merrill Lynch survey of affluent investors, they are beginning to adapt to the current economic and market situation as the new normal, as opposed to looking at it as a temporary period of high volatility. Perhaps because they’ve now made that psychological leap, affluent investors are beginning to feel that their situation is more stable. From a Penta article:
To prepare for a more volatile environment, this affluent group also is making efforts to control what they can by spending less, paying down debt, and generally “putting their lives in check,” Durkin said. Of the families surveyed, 50% said they’ve taken steps to gain greater control of their finances, like sticking to a budget (32%), making more joint investment decisions with a spouse (29%), and setting tangible goals (28%). One third of respondents said they’re living “more within their means.”
In other words, the affluent are adapting by toggling back their lifestyle and saving more.
Making that psychological shift is critical because it allows a lot of good things to happen. It’s also perhaps a realization that although you can’t control the markets, there is a lot you can control that will impact your eventual net worth—namely, living beneath your means and saving more. Being affluent, in and of itself, won’t build net worth.
Once a client has good habits in place, compounding kicks in and net worth tends to grow more rapidly than clients expect. Clients are usually delighted with this discovery!