Jul 12, 2023
Across the country, America’s super-rich have reduced their exposure to the stock market by the most dramatic margin in years, according to recent data from the Capgemini Research Institute.
High net worth individuals — defined by Capgemini as those with $1 million or more in investable assets — held over 34% of their portfolios in cash as of January 2023. That’s the highest level since at least 2002. It’s also significantly higher than the 24% cash exposure these investors had last year.
Advertisement
Ultra-high net worth individuals and billionaires seem to be following a similar pattern. Warren Buffett’s Berkshire Hathaway, for instance, added $2 billion to its cash reserve in the first quarter of 2023, bringing its cash balance to $130 billion.
By comparison, wealthy investors had just 23% of their net assets in publicly traded stocks. That’s the lowest level of stock exposure in 21 years, according to the report. Rich Americans seem to have given up on the stock market, even as some stocks rebound.
The retreat of the ultra-wealthy from the stock market could offer some early warning for retail investors.
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.
Advertisement
With returns on very low-risk investments so elevated, wealthy investors may be seeing better alternatives elsewhere.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — are you doing the same?
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Robert Kiyosaki says this 1 asset will surge 400% in a year and begs investors not to miss this ‘explosion’
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
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.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- Inside a $1B real estate fund offering access to thousands of income-producing rental properties — with flexible minimums starting at $10
- Vanguard’s outlook on U.S. stocks is raising alarm bells for retirees. Here’s why and how to protect yourself
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
