It's been a rough year for high net worth investors. And they're starting to act scared with their money.
High net worth individuals, people with investable assets of $1 million or more, dumped their stock exposure in 2023 by 6 percentage points to 23% — the largest annual drop since 2008 amid a serious financial crisis, says a new Capgemini World Wealth Report.
And what did the rich load up with instead? Cash. High net worth investors boosted their cash positions by 10 percentage points — the greatest jump of any asset class — to 34%. That's wealthy investors' largest position in cash since at least 2002, Capgemini says.
This is an important shift. It signals wealthy investors are opting for the perceived safety of cash — especially given that 5% risk-free returns are possible in just plain savings accounts. And the rich are willing to give up on the growth of stocks in exchange. Cash is now the largest position in their portfolios.
"Clients are more conservative during uncertain times, with priorities focused on preserving wealth through diversified investment strategies and an eye to the future," said James Dunlop at ANZ Australia, a bank, in the report.
High Net Worth Individuals Rough Year
It's time to break out a violin for the world's richest people.
High net worth individuals' wealth dropped 3.6% coming into 2023 versus the previous year, Capgemini said. That's the largest drop in high net worth coffers in the past decade. And the drop off was an even steeper cliff in North America. High net worth individual's wealth plunged 7.4% on the continent, which remains the richest in the world. Massive drops in tech stocks like Amazon.com, Tesla and Zoom Video Communications were to blame.
The drop also had to do with slowing global economic growth, stubbornly high inflation and rising interest rates. Global economic growth slowed to 3.2%, half of its 6% rate in 2021.
And wealthy individuals retrenched to hang onto what they have. More than two-thirds of high net worth individuals prioritized wealth preservation as a goal going into 2023.
What Crazy Rich Investors Are Doing With Their Money
When simply keeping your money is your top priority, your investments look very different than if you're trying to amass more. That's clear in shifts high net worth individuals made shifts to their portfolios coming into the year.
Wealthy investors shifted toward cash and away from S&P 500 stocks. But they didn't stop just there. They largely traded in their sinking tech stocks for cheaper value-priced stocks, Capgemini said. That may have helped stem the pain in 2022, but it's costing them now. The top seven largest S&P 500 stocks, mostly mega-sized techs, are completely driving this year's roughly 9% rally.
Meanwhile, the wealthy lightened up on bonds as well coming into 2023, too. That's a bit surprising, as bonds' relative safety is usually a draw during economic uncertainty. But bonds suffered their worst year in more than two centuries in 2022, Capgemini said. "The Total Bond Index, which tracks U.S. investment-grade bonds, fell by more than 13% in 2022 ... (it) had never before declined to such a degree," says the report.
Lacking bonds to hide in, the rich dashed for cash instead. Also, thanks for rising interest rates, investors can collect 5% annual yields without the risk of buying stocks or even bonds. "Rising interest rates and high inflation have made returns on cash and cash equivalents more attractive, and they are less risky," Capgemini said.
And when safety is the goal, it's hard to beat cold-hard cash.
Where The Rich Are Putting Their Money
| Asset Class | 2023 % allocation (percentage point ch. from 2022) | Representative ETF | Symbol | 1-year % price ch. | Yield |
|---|---|---|---|---|---|
| Cash, Equivs. | 34% (up 10) | JPMorgan Ultra-Short Income | -0.2% | 3.0 | |
| Stock | 23% (down 6) | Vanguard Total Stock Market | 1.8% | 1.5 | |
| Fixed Income | 15% (down 3) | Vanguard Total Bond Market | -4.6% | 2.7 | |
| Real Estate | 15% (unchanged) | Vanguard Real Estate | -17.6% | 4.0 | |
| Alternatives | 13% (down 1) | IQ Hedge Multi-Strategy Tracker | -1.1% | 1.9 |
Sources: Capgemini, S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
