Wealthy Americans are ditching the stock market and holding on to historic levels of cash — here’s why and what they’re investing their fortunes in instead
Across the country, America’s wealthy have reduced their exposure to the stock market by the most dramatic margin in years, according to the latest reports. data From the Capgemini Research Institute.
High net worth individuals — defined by Capgemini as those with $1 million or more in investable assets — held more than 34% of their investment portfolios in cash as of January 2023. This is the highest level since at least 2002. It’s also much higher than the 24% cash exposure these investors had last year.
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High net worth individuals and billionaires appear to follow a similar pattern. Warren Buffett’s Berkshire HathawayFor example, it added $17 billion to its cash reserves in the second quarter of 2023, bringing its cash balance to nearly $150 billion.
By comparison, wealthy investors had only 23% of their net assets in publicly traded stocks. This is the lowest level of equity exposure in 21 years, according to the report. Rich Americans seem to have done just that Abandon the stock marketEven with some stocks rebounding.
The withdrawal of the wealthy from the stock market could provide an early warning to retail investors.
Wealthy people are in “wealth preservation” mode.
“Wealthy investors are still in wealth preservation mode,” Robert Frank, wealth editor at CNBC, said recently in an article. interview on the channel during the dissection of the Capgemini report. More than two-thirds of investors surveyed said preserving their capital is a top priority right now.
Rampant inflation and rising interest rates have made stocks less attractive. Meanwhile, cash and cash equivalents can generate better-than-expected returns. The two-year US government treasury currently offers a yield of around 5.0%.
In comparison, the S&P 500 currently offers a dividend yield (inverted price-to-earnings ratio) of 4.01%.
Given the high level of volatility and risk, stocks are only an attractive investment if they offer a much better return than safer options such as US government bonds.
And with higher returns on very low-risk investments, wealthy investors may see this Better alternatives elsewhere.
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Last UBS Global Family Bureau Reportwhich surveys households with over $100 million in investable assets, also tells the story of investors looking for alternative assets and fixed income securities.
The report says people in this group of the ultra-wealthy plan to increase their exposure to these types of safer and more predictable fixed-income securities from 12% to 15% this year.
Private equity and private credit were also on these families’ radar.
CNBC’s Frank said in his interview that returns on private credit deals can range from 12% to 15%, which is hugely attractive.
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