TOO MANY BULLS, TOO many of anything isnt a good thing. Im not buying this survey. MarketWatch Wealthy investors predict double-digit stock-market gains in 2007 Tuesday February 6, 8:20 pm ET By Thomas Kostigen Survey: Millionaires predict 10% stock-market rise for 2007 SANTA MONICA, Calif. -- Many millionaires believe the stock market will generate returns as high as 10% this year. Northern Trust Corp.'s "2007 Wealth in America" survey of more than 1,000 individuals worth at least seven figures finds a positive outlook for the year, led by faith in corporate earnings growth. ADVERTISEMENT Only 6% of those surveyed believed the market would decline this year. In last year's Northern Trust survey of millionaire expectations for 2006, most individuals predicted the stock market would produce a return of 6%. As it turned out, they were way off base. Last year, the S&P 500 index's return was more than 15%. This year, those rather bearish predictions have turned more bullish because millionaires say they expect the U.S. economic expansion to continue. To be sure, those who remained in the bear camp cited similar reasons as last year for their dour outlook: They expect the market to flounder as a result of a worsening economic crisis, increasing federal budget and trade deficits, and the decline in the value of the dollar. As President Bush turns in his widely criticized $2.9 trillion budget, the bearish predictions look more accurate. It's anyone's guess how that will manifest in market returns, however. Still, even those with positive expectations for the coming year aren't over-reaching for stock market results. The S&P 500 index and the Russell 2000 index were up 15.8% and 18.4%, respectively, in 2006. And many millionaires could easily have based their expectations for the year ahead on those results. John Skjervem, chief investment officer for Northern Trust's personal-financial-services group, said respondents were "very astute" not to base their 2007 expectations on last year's results because, as any financial adviser will tell you, it's wiser to be more conservative with your money than more aggressive. Overweighting the equity portion of a portfolio can incur a great deal of risk and handicap the proper mix of stocks, bonds and cash -- known as asset allocation. Such balancing is the greatest contributor to investment returns. Bad balancing, such as putting too much money in equities, can produce more risk and lead to a portfolio's fall. Lessons learned? The more conservative path of millionaire expectations is surprising given that in a survey in 2005, Northern Trust found rich people's expectations were unrealistic and "out of synch." At the time, the Chicago-based insurer found that wealthy investors weren't diversified across asset classes, with some believing they could earn as much as five percentage points above what is historically accurate. Perhaps those millionaires were given sober advice. Despite the high stock-market returns of last year, most millionaires surveyed by Northern Trust this year believe there will be a "positive" and "meaningful" downshift from what the market returned in 2006. It should be noted that the majority of high-net-worth investors are oriented toward capital growth as opposed to capital preservation, as was the case last year. Some key findings from this year's survey include: Domestic equities dominate the portfolios of most millionaire investors surveyed, representing 43% of their assets and up slightly from 41% in 2005. Wealthy investors reduced their exposure to real-estate investments from 13% to 8%. International equities now comprise 10% of high-net-worth portfolios, up from 8% in 2005. Wealthy investors are holding as much as 13% of their assets in money-market reserves or other cash-equivalent instruments. And the more money people have, the more likely they are to own hedge funds: Households with $10 million or more in investable assets report that 31% of their portfolios are allocated to alternative investments. Meanwhile, households below the $10 million investable-asset threshold maintain average alternative-investment allocations of 7%. Age also plays into hedge-fund allocation. Gen X millionaires, aged 27 to 41, have a much higher exposure to alternative investments than baby boomers, aged 42 to 60, who, in turn, have a higher allocation than mature millionaires, aged 61 and older. "Alternative asset-class investments, particularly hedge funds and private equity, often have lock-up provisions and other limitations on liquidity. These types of investments also do not typically generate any current income. So it really comes as no surprise to find allocations to alternative assets inversely correlated with age," Skjervem said. "Younger investors, presumably still working, can afford to invest a larger proportion of their portfolio in an illiquid, non-income-producing asset class. On the other hand, older investors, particularly retirees, usually rely on their investment portfolios for at least some part of the income needed to support their lifestyles. Older investors place a premium on liquidity too." Despite all this, the large majority of millionaires plan to make few, if any, changes to their asset allocation this year. The rest of us should pay the most attention to that finding.