Even with inflation rising, many investors are stockpiling cash.
UBS polled 900 U.S. investors and 500 business owners during January.
Gianluca Colla/Bloomberg
That’s an important takeaway from UBS Global Wealth Management’s fourth quarter Investor Sentiment report published last week.
Sixty-one percent of high-net-worth U.S. investors polled in January said they have more than 10% of their portfolio in cash and equivalents such as CDs. Of those, 56% said they are concerned about the impact of inflation on cash value, and 41% said they are waiting for the right opportunity to invest.
What’s more, most U.S. investors polled by UBS said they believe inflation will continue through 2022, with 62% saying it will last longer than 12 months.
For financial advisors, this could be a good time to ensure clients’ cash allocations aren’t out of whack. Holding too much cash can be a money-losing proposition during periods of rising inflation. Consumer prices surged 7.5% year over year in January, a four-decade high.
“The first step in determining what clients should do with their cash holdings is to evaluate how much of their total wealth should be in cash or other highly liquid and safe instruments,” says Jason Draho, head of Asset Allocation Americas for UBS Global Wealth Management.
Once this determination is made, advisors can recommend how the cash can be optimally allocated among safe, short-maturity investments. “Any residual cash can then be deployed into investment strategies supporting long-term goals, with the allocation contingent on their existing asset allocation, risk tolerance, preference for alternative assets, and so on,” he says.
U.S. investors also said they have qualms about market volatility, which isn’t surprising given how brutal January was for stocks. With February shaping up to be topsy-turvy as well, it’s an opportunity for financial advisors to reach out to clients, especially the more jittery ones, to discuss strategy.
Forty-eight percent of investors polled by UBS cited concerns about a market downturn. Amid volatility, 39% of U.S. investors polled said they could consider adding stocks to their portfolios. Thirty-six percent said they would contemplate adding portfolio hedges, while 35% said they would think about reducing cash, and 31% expressed a desire to consider adding real estate.
The U.S. portion of the global report polled 900 U.S. investors and 500 business owners. Investors had at least $1 million in investible assets. Business owners had at least $1 million in annual revenue and at least one employee besides themselves.
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