Using cash like a millionaire may not make sense for most investors. Here’s why

by | Jun 8, 2023 | Financial

Simpleimages | Moment | Getty ImagesMillionaires moved money out of stocks into cash and cash-like investments in the past year and may add to those allocations over the next 12 months, according to a new CNBC Millionaire Survey. But the average investor may not be wise to mirror the millionaires.Much would depend on their circumstances and rationale for the shift, financial advisors said.Higher interest rates make cash more attractiveMillionaires held 24% of their portfolio in cash as of spring 2023, up significantly from 16% in fall 2022 and 14% from spring 2022, according to the survey.The poll considered cash and cash-like investments to include money market funds, checking and savings accounts, plus certificates of deposit. It surveyed 764 people with $1 million or more of investable assets and was conducted in April 2023.A recent Capgemini Research Institute survey also found affluent investors are holding a record share of cash.More from Ask an AdvisorHere are more FA Council perspectives on how to navigate this economy while building wealth.On one hand, having more money in cash today isn’t necessarily a bad move due to higher interest rates, advisors said.Cash-like accounts had been paying rock-bottom interest rates for much of the period since the 2008 financial crisis, meaning investors largely had to turn elsewhere for any hope of a return on investment.But interest rates have been rising steadily since the Federal Reserve started raising its benchmark rate aggressively last year to tame high inflation. ¬†¬†Today, cash-like accounts can yield investors up to roughly 5% or so, making it more attractive as an asset class, said Ted Jenkin, a certified financial planner based in Atlanta.”Now investors have choice,” said Jenkin, founder of oXYGen Financial and a member of CNBC’s Advisor Council. However, with inflation currently running at an annual pace of about 5%, it ends up roughly being a net wash, he added.However, not all accounts are necessarily paying competitive rates to consumers. For example, high-yield savings accounts offered by online banks typically offer much higher payouts on cash than a traditional savings account held at a brick-and-mortar bank.Affluent investors may also have more money on the sidelines these days as they wait for other investment opportunities such as private equity and real estate to open, Jenkin added.Why it’s not always smart to move more money to cashHowever, for the average investor, “it’d be silly to wait in cash” instead of investing in a higher-return investment such as stocks if a household doesn’t need that money for at least five years, Jenkin said.Yet, the CNBC millionaire survey suggests wealthy millennials shifted into cash more readily tha …

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