Most investors have way too much cash. Wealthy investors really have too much.
This is a phenomenon Citi Private Bank’s David Bailin has observed whether the markets are soaring, stumbling, or stagnant.
According to Federal Reserve figures, retail investors had about 18% of their assets in money market funds and in U.S. bank deposits, considered cash alternatives, at the height of the financial crisis in 2009. But today, they still have a high percentage in cash—around 14%.
Citi Private Bank’s clients, who have at least US$25 million in investable wealth, had about 25% of their wealth in cash in 2009, but they still have 22% in cash today, says Bailin, global head of investments at the bank.
“Their behavior, the ultra-high net worth, was similar to retail except it was worse,” he says.
For a client with US$100 million in investable wealth—and many of Citi’s client exceed that level—that’s at least US$22 million that’s not providing a return much above 1% to 2% a year.
“If a client has US$100 million, why would they need US$15 million or US$20 million in cash?” Bailin asks. “They should have it fully invested—they may need US$5 million [in cash]”.
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