Vishesh Raisinghani
·3 min read
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.
Don’t miss
Commercial real estate has outperformed the S&P 500 over 25 years. Here's how to diversify your portfolio without the headache of being a landlord
Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead. Get in now for strong long-term tailwinds
‘A natural way to diversify': Janet Yellen now says Americans should expect a decline in the USD as the world's reserve currency — 3 ways you can prepare
Ultra-high net worth individuals and billionaires seem to be following a similar pattern. Warren Buffett’s Berkshire Hathaway, for instance, added $17 billion to its cash reserve in the second quarter of 2023, bringing its cash balance to nearly $150 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.
For some retail investors, the retreat of the ultra wealthy from the stock market might seem like an early warning sign. Here's more on what the signs show — and what investors should do.
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 5.0%.
By comparison, the S&P 500 currently offers an earnings yield (inverted price-to-earnings ratio) of 4.08%.
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.
Read more: Thanks to Jeff Bezos, you can now use $100 to cash in on prime real estate — without the headache of being a landlord. Here's how
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.
What to read next
Worried about the economy? Here are the best shock-proof assets for your portfolio. (They’re all outside of the stock market.)
The US dollar has lost 98% of its purchasing power since 1971 — invest in this stable asset before you lose your retirement fund
Jeff Bezos and Oprah Winfrey invest in this asset to keep their wealth safe — you may want to do the same in 2023
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
