Population of world's millionaires shrinks

The world's population of millionaires shrank dramatically last year as the global economic crisis took its toll on the wealthy, according to a report by Merrill Lynch Global Wealth Management and consulting firm Capgemini.

The number of people with assets of between $1 million and $30 million fell 14.9 percent to 8.6 million, according to the World Wealth Report released Wednesday.

The former parent of the wealth management unit, Merrill Lynch & Co. -- which reported more than $35 billion in losses in 2007 and 2008 -- was acquired by Bank of America Corp. this year.

The steep reduction in millionaires represented the largest decline in the report's 13-year history, said Ileana van der Linde, a principal with Capgemini. It also brought the number of millionaires and their wealth below 2005 levels.

"We've never seen such a decline in all the years we've been doing the report," she said in an interview with The Associated Press. "This market was really unprecedented."

The downturn lowered the combined wealth of the world's millionaires by 19.5 percent to $32.8 trillion.

It also brought even greater losses to the ultra rich.

The population of individuals with more than $30 million in assets dropped 24.6 percent, and the group's wealth fell 23.9 percent, largely because many favored riskier investments that experienced hefty losses this past year.

Geographically, the fallout occurred around the globe, touching every region, the report noted.

The most significant declines in the millionaire population came in North America, Europe and the Asia Pacific region.

In the U.S., the number of millionaires fell 18.5 percent to 2.5 million people, but the country remains the single largest home to such wealthy individuals, followed by Japan and Germany.

China's millionaires surpassed those of the U.K. to become the fourth-largest population. Hong Kong's population of millionaires shrank the most in percentage terms, down 61.3 percent, to 37,000.

Other countries, notably those in Latin America, fared better.

Millionaires in Brazil, for instance, saw their combined wealth decline only 8.4 percent, far less than the global average.

Such a trend may be explained by the fact that Latin America investors tend to be more conservative, van der Linde said, and favor fixed-income securities.

"Latin America lost the least of all regions," she said. "That also helped mitigate some of the loss that was experienced throughout the rest of the globe."

As the economy spiraled downward, though, many investors looked to park their money in cash or cash equivalents with maturities of less than a year, said Dan Sontag, president of global wealth management at Merrill Lynch.

"As the year progressed and people saw their net worths decline," he said, "they got ultra conservative and hoarded cash in the marketplace."

Yet investors found few safe havens in 2008. Nearly all asset classes, from real estate to equities, posted declines, Sontag said.

That made this downturn different from previous ones, such as the technology bust of 2000, which was limited to a certain sector of the economy, he said.

"I've never seen markets like this," he said. "I think you'd have to be older than 80 to say you've seen markets like this. It left no asset class unscathed here."

Wealthy individuals, like others, reacted with a back-to-basics approach to investing.

Many are now taking greater control of their portfolios and requesting simplified investments with greater transparency, van der Linde said.

Sontag said Merrill Lynch clients are also increasingly looking to invest in municipal bonds, U.S. Treasury bills and fixed income securities that are fairly straightforward and easy to understand.

Of course, not all investors have lost their appetite for risk.

In the past month or so, Sontag said he's seen more people asking questions, looking to take advantage of the down market.

"Clients are beginning to look forward here, they're out of this neutral position," he said. "They're beginning to think what do I want to do here, and what are the opportunities in the market?"
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10 things to buy before the economy improves

Sadly, someday this recession is going to end.

After 17 months of steep decline, both the president's Council of Economic Advisors and the Federal Reserve now believe the economy will begin to recover sometime in 2009.

Great news, to be sure.

But it's also a warning to consumers: The deals you're seeing on everything from houses and cars to televisions and furniture won't last forever. Luckily, for a host of goods and services, the sale of the century (literally) is still on.

The reason is simple: no buyers. Personal savings in 2008 were nearly six times greater than in 2005, amounting to $191 billion or 1.8% of the nation's disposable income. In 2009, annualized savings for January and February exceeded $450 billion, or more than 4% of disposable income.

For those feeling bold enough to bargain shop, opportunities abound. Some deals, like housing and automobiles, might be obvious, but others, like diamonds, might not be.

Big ticket items
At the top of the list: housing. This may be the best time in a generation to buy a home. According to the S&P/Case-Shiller U.S. National Home Price Index, fourth-quarter 2008 prices were down 25% from the four quarter of 2006. The stimulus bill Congress passed in February includes an $8,000 credit for first-time home buyers. According to bankrate.com, average interest rates are beginning to dip below 5% for a 30-year, fixed-rate mortgage.

More good news for consumers: Automakers had a miserable 2008. Auto demand is down by approximately 33% since October and dealers have excess inventory backing up and bills coming due. It's a good time to buy.

Incentives from manufacturers have "probably never been as strong as they are today," says John McEleney, a multi-franchise auto dealer and chairman of the National Auto Dealers Association. If you've got good credit, you can expect 0% financing and cash rebates as high as $6,000.

Another deal? Diamonds. Anyone in the market for a something sparkly will find prices down 14%, on average, since their highs in mid-2008, according to Ken Gassman of the Jewelry Research Institute. Gassman says more expensive diamonds have seen even greater drops. A pristine 4-carat diamond that went for $70,000 per carat is now selling for $51,700 per carat — a 26% discount.

Consumer goods
Each year it seems like TVs get cheaper and cheaper, but this year those decreases are starting to make larger flat-panel TVs far more affordable. The radio/television category in February's Consumer Price Index was down 9% from a year ago as more manufacturers get into the flat-panel business, driving prices down.

Same thing for furniture. The Consumer Price Index shows prices fell 2.4% since August, but even bigger bargains are out there. With fewer people buying houses, fewer shoppers are filling them. Jim Sluzewski, a spokesman for Macy's, says demand has noticeably decreased over the past year. Retailers have excess inventory, leading to lower prices and better deals for consumers.

Women's fashion is also an interesting story. Right now there is no dominant fashion trend in women's apparel, according to Jeffrey Klinefelter, senior research analyst on the Piper Jaffray consumer team.

Women have been taking greater advantage of lower-cost clothing retailers like Forever 21 and Target, not feeling the need to spend more on expensive outfits. This allows the lower-cost chains to reduce their prices through production cost savings and requires the higher-cost chains and designers to cut prices on their excess inventory in response to lower demand.

So if you're ready to spend a little, now's the time. Bargains are out there — for as long as the downturn holds.
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