[Practical Finance] Mass Affluent Who Enjoy Risks... Manage Your Assets Like Them in the New Year

Real Estate and Domestic Stocks Betting
"60% Hope to Purchase Real Estate"
1 in 5 Invest in Cryptocurrency

[Asia Economy Reporter Oh Hyung-gil] As the unprecedented ultra-low interest rate era comes to an end this year, new changes are being detected in financial investment strategies for the new year. The current base interest rate has been maintained in the 1% range after being raised by 0.25 percentage points each in August and November by the Monetary Policy Committee.

The U.S. Federal Reserve (Fed) has indicated its intention to raise the base interest rate three times next year, accelerating the clock on interest rate hikes. It is expected that an additional increase may occur as early as next month.

As interest rates rise, commercial banks are increasing savings and deposit rates, creating an atmosphere where funds that had flowed out to real estate and stocks are returning to banks. The 'debt investment' craze, which had spread to real estate and cryptocurrency markets due to rising loan interest rates, is cooling down, signaling a tectonic shift.

Economic uncertainty appears to be growing. The subsiding COVID-19 has turned harsher at the end of the year due to the spread of Omicron breakthrough infections. With even the perceived economy freezing, a chaotic reality continues where the future is unpredictable.

Where is the lighthouse to find the path of financial investment? To find an answer to this question, let's examine how wealthy individuals in Korea currently manage their assets and respond to risk factors. Their asset management secrets may provide hints for new year financial strategies.

[Image source=Yonhap News]

Asset Management Role Model: ‘Mass Affluent Class’

The mass affluent class is on the move. The mass affluent class refers to households in the top 10?30% income bracket. According to a recent analysis report on the mass affluent class by Woori Financial Management Research Institute, unlike traditional wealthy high-net-worth individuals, they are defined as customers with a certain level of income and assets. Households with an annual pre-tax income between 70 million KRW and less than 120 million KRW fall into this category.

The net assets of the mass affluent class increased by 119.4 million KRW compared to last year. Total assets amounted to 913.74 million KRW, and after deducting liabilities of 148.34 million KRW, net assets were 765.4 million KRW. Among total assets, real estate accounted for 750.42 million KRW, financial assets 120.77 million KRW, and tangible assets including cryptocurrencies 42.54 million KRW.

Real estate assets increased by 141.43 million KRW (23.2%) year-on-year, buoyed by a market boom. The two main sources of funds for acquiring real estate were household income at 92.1%, the highest proportion, followed by loans at 47.3%.

Within financial assets, the proportion of stocks increased significantly while other assets decreased. Among loan products, mortgage loans were the most used, with an average balance of 154.04 million KRW.

For them, COVID-19 became an opportunity to reduce savings and cut leisure and entertainment expenses. While spending on essentials (50.6%), medical expenses (27.9%), and education (26.7%) increased significantly, leisure expenses (73.5%) and entertainment expenses (60.4%) decreased sharply.

Their primary purpose in accumulating and managing assets was retirement preparation and a comfortable, affluent lifestyle. Four out of ten expressed a willingness to take risks for high returns.

On the 21st, the KOSPI opened at 2,981.67, up 18.67 points (0.63%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate started at 1,189.8 won, down 1.0 won from the previous trading day. Photo by Hyunmin Kim kimhyun81@

Their Investment Tendencies: Knowing How to Enjoy Risk

The mass affluent class has developed a strong tendency to pursue high-risk investments. Especially after COVID-19, one in three among the mass affluent increased their investment activities. Those with increased income expanded their investments more aggressively.

The investment product that attracted the most interest from the mass affluent was domestic stocks, and financial investment-related information was mainly searched through mass media such as broadcasts. Domestic stocks accounted for 50.2% of the products they showed interest in or invested in, and this high interest among the mass affluent led to an increase in stock assets.

Next were real estate (26.1%), public offering stocks (24.0%), and overseas stocks (21.7%). This shows that interest in investment products that heated the market this year also increased among the mass affluent. Cryptocurrencies (18.2%) held a similarly high proportion to bank fixed deposits and savings (18.9%).

About one in five of the mass affluent invested in cryptocurrencies, with the average investment amount among respondents being 20.41 million KRW. The highest proportion (43.5%) invested less than 2 million KRW, followed by 19.9% investing between 2 million and 5 million KRW, and 17.0% investing between 10 million and 50 million KRW.

About 60% of the mass affluent intended to purchase real estate in the future. Among them, more than half of those planning to finance the purchase through loans said they would give up buying real estate if loan interest rates reached 4?5%. This indicates a significant burden felt due to rising interest rates.

Regarding channels for obtaining financial investment information, economic and investment broadcasts on terrestrial and cable TV were the most popular at 46.1%. Online communities such as cafes and blogs ranked second at 37.6%, and family, friends, and acquaintances ranked third at 36.5%. Overall financial institution information channels, including bank internet and mobile banking (18.3%), were less utilized than social media (18.8%).

Kim Su-jeong, senior researcher at Woori Financial Management Research Institute, stated, "The mass affluent class is becoming increasingly important as economic agents due to improved consumption levels and active investment activities," but also diagnosed, "The proportion of savings, deposits, and personal pensions has decreased, stock investments have increased significantly, and risk-taking investment tendencies have grown, leading to expanded risks associated with asset value changes."