The woes of the "mass affluent."

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Who are the mass affluent? Don't be afraid to ask, because I didn't know either. The "mass affluent" are Americans with "investable" assets ranging from $100,000 to $1 million, according to Spectrem Group, a consulting group (sprectrem.com) that studies the mass affluent and retirement markets.

And right now, the real-estate market is causing an undersea earthquake that could develop into a financial tsunami, uprooting many members of the mass affluent club. Spectrem finds this group at "significant risk" of loss if the much-ballyhooed real-estate bubble bursts. Not so for their richer brethren (those with $1 million and more to invest), who keep a smaller portion of their portfolios in real estate.

Distribution of total assets – mass affluent

Asset class Percentage of total assets
Principle residence 23 %
Investable assets 22%
Privately held business 16%
Defined contribution/defined benefit plans 16%
Investment real estate 14%
Insurance and annuities 9%

Source: Spectrem Group

The breakdown shows that the mass affluent keep a total of 37 percent of their investments in real estate. Of that figure, 23 percent is in their principal residences and 14 percent is in other real estate purchased for investment purposes. But people with $1 million or more to invest keep a much more modest 21 percent of their money in real estate. As Spectrem points out:

"Mass affluent investors have heavily tied their financial futures to the real-estate market, which has been so hot for so long that many believe it has virtually no place to go but down. The most striking fact is that the mass affluent have 76 percent greater exposure to real estate than millionaires, who because of their wealth should have a more substantial financial cushion. If the real-estate market begins to crack, it is the mass affluent who will likely feel the effects both faster and with greater force."

Yeah, but let's hope it's not tsunami-force, though early indications are that it could reach that point. The Associated Press reports that "the number of California homeowners who received mortgage default notices increased in the first quarter [of 2006] to the highest level in more than two years."

So what do the megarich know that the moderately well-off don't? Diversify!!!! And just in case you're not in either group and think it doesn't matter what happens to people with money, consider this: Spectrem calls mass affluent investors an "important part of the U.S. economy" who control more than a third, or 37 percent, of the nation's investable assets. If they're hit by a major financial storm, everyone suffers.