Economy

The Rich Throw More of Their Money Under the Mattress

Douglas A. McIntyre

Published: November 12, 2019 6:30 am

Last Updated: January 6, 2020 1:17 am

The very wealthy have started to turn their backs on traditional investments and have thrown much of their net worths into cash. Typically, this investment decision makes them very little money but is a flight to safety in which the rich turn their backs on the returns that the stock markets have given them for years. It also shows anxiety about the economic future.

According to UBS Wealth Management, people surveyed worldwide have put 25% of their portfolios into cash. The study covered 3,400 rich people in 13 countries. Notably, UBS advises that these people have much more of their money in traditional investments and much less in cash. Moving further away from UBS’s recommendations, 60% would consider increasing their cash positions.

Why such investment pessimism? Seventy-two percent believe the “investment environment” is moving toward a “period of high volatility.” Sixty-six percent believe the markets are now moved more by geopolitical issues than fundamentals. At the top of that list is the U.S. trade war with China. The upcoming U.S. election was also high on the list. Paula Polito, Client Strategy Officer at UBS Global Wealth Management, commented on current investor concerns, “The rapidly changing geopolitical environment is the biggest concern for investors around the world. They see global interconnectivity and reverberations of change impacting their portfolios more than traditional business fundamentals, a marked change from the past.”

What the wealthy believe is not out of step with what many economists and stock market analysts have said, and these comments may be the reason for their conservative investment postures. Many see a recession on the horizon. Some of the world (in particular, large economies like Germany) have started to head in that direction. U.S. gross domestic product (GDP) growth has dropped below 2%. China’s economic growth is at the lowest level in decades. Both the International Monetary Fund and the World Bank have cut their global GDP growth forecasts for 2020.

In the meantime, many stock markets around the world are near all-time highs. This is particularly true in the United States. Earnings forecasts for many public companies have signaled slow growth for the year ahead.

Finally, the trade war between the United States and China shows little sign of ending, despite recent news reports to the contrary. Hundreds of billions of dollars in tariffs are already in place or are scheduled to be.

Do the rich view the economic future differently than others? Perhaps, as they shift more money into cash.