Despite the robust market, investors are more likely to hold their assets in cash-based investments in the fall of 2020 than they were in 2016. Whether it is the market volatility, the election or the pandemic, investors are more cautious at the end of 2020 than they were in 2016.
Each month Spectrem conducts research with approximately more than 1000 investors with approximately half having more than $1 million. As of October 2016, wealthy investors were holding 15% of their portfolios in cash based investments. That percentage increased briefly in November 2016 to 22% but returned to 16% in December 2016. While the election of Donald Trump was a surprise for many, it only briefly changed their investment allocation.
Investors entered 2020 with a higher allocation of cash in their portfolios than they had in 2016. As of January 2020, wealthy investors had 21% of their portfolios invested in cash. This was despite a robust market. Perhaps even early in the year they anticipated volatility due to the upcoming election. As of June 2020, these investors had increased their cash allocation to 22% of their overall portfolio. This result is not surprising due to the pandemic. As of early fall 2020, that percentage was at 24%.
The outlook for the market will be dependent upon how or if investors decide to invest in the 4th quarter of 2020. When investors were asked how likely they are to invest in the next few months they answered as follows:
As you can see, 25% plan to continue to hold assets in cash based investments through the end of the year. Cash, however, is not the most popular investment. Twenty-eight percent plan to invest in mutual funds and almost 20% of investors are leaning towards individual stocks. While the interest in stocks and mutual funds is slightly lower than before the pandemic, it’s still somewhat positive for the markets.
Financial advisory firms need to reach out to investors after the election and discuss the right asset allocation for each family. Investors may be willing to reinvest some of their cash should that investor feel the economy is headed in the right direction.