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]”.
More here – Barrons
This is something traders have to consider also. Cash as an investment is lousy even if you can get 2%+ in a cash account. If you are trading your cash amount is going up and down all the time. When you are low in trades and up in cash, where do you park you $$s to get > 2-3%?
Sounds like a horrible problem to have