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Super-rich are in ‘wealth preservation’ mode

“Wealthy investors are still in wealth preservation mode,” CNBC wealth editor Robert Frank said in a recent interview on the channel while dissecting Capgemini’s report. More than two-thirds of investors surveyed said preserving their capital was 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-anticipated returns. A two-year U.S. government treasury bond currently offers a yield of around 4.9%.

By comparison, the S&P 500 currently offers an earnings yield (inverted price-to-earnings ratio) of 4%.

Given their higher level of volatility and risk, stocks are only an attractive investment if they offer a significantly better return than safer options like U.S. government bonds.

With returns on very low-risk investments so elevated, wealthy investors may be seeing better alternatives elsewhere.

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Better alternatives

The latest UBS Global Family Office Report, which surveys families with over $100 million in investable assets, also tells the story of investors looking at alternative assets and fixed-income securities.

People in this group of the ultra-rich are planning to increase their exposure to these types of safer, more predictable fixed-income securities from 12% to 15% this year, the report says.

Private equity and private credit was also on these families’ radars.

Returns on private credit deals could be in the 12-to-15% range, which is significantly attractive, CNBC’s Frank said in his interview.

Opportunities for retail investors

Unfortunately, with the barrier to entry on private equity or private credit so high, retail investors don’t typically enjoy the same access to alternative investments as the wildly wealthy. However, there are some attractive opportunities available to average investors.

Investment-grade corporate bonds with AAA credit currently offer a yield of around 4.8%. Bonds, which haven't been popular in decades, may be undergoing a resurgence as investors search for a safe and steady place to park their wealth.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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