Is the volatility of the past few years causing wealthy investors to keep higher levels of their assets in cash and cash-based investments?  While it might be easy to believe the wealthy investors are keeping higher levels of cash in their portfolios, the reality is that they actually have less cash than just a few years ago.

In research completed with Ultra High Net Worth Investors (UHNW) at the end of 2021, Spectrem found that investors with $5-25 million of net worth had a mean value of approximately $641,000.  This is a combination of their assets held in money market funds, checking/savings accounts and other cash.  This represents a significant amount of assets sitting on the sidelines and not invested in the market.  It’s important to note that a third of these wealthy investors also have CDs with an average net value of $250,000.

How does this compare to past years? At year-end 2018, UHNW investors actually had more cash in their portfolios, averaging approximately $716,000 in their combined money market funds, checking/savings accounts and other cash.  At that time, 40% of UHNW households had CDs with averaging approximately $385,000.

 

The fact that wealthy investors have less cash and small CD balances highlights the confidence they have had in the economy in the past few years.  Strong markets throughout 2021 reinforced this confidence.  It will be interesting to see, however, if inflation, the current political environment, and the war in Ukraine cause investors to liquidate more of their equities into cash-based investments.  While having more than $500,000 in cash may seem substantial to ordinary investors, these wealthy households currently feel comfortable with their cash investments.  Advisors should continue to discuss with their clients the amount of cash that each investor feels is necessary should the market environment become more volatile.