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According to a 2017 U.S. Trust annual survey of high-net-worth individuals with over $3M investable assets, over 50% hold at least 10% of their portfolio in cash positions. That means individuals with a $5M portfolio have at least $500,000 in cash on hand.
This number is much higher for millennials – those individuals who were born between 1981 and 1996. Nearly 1 in 2 high-net-worth Millennials have more than 25% of their portfolios in cash.
This may be shocking since financial advisors typically recommend that millennials invest aggressively because they have time on their side to recoup losses.
Why are Millennials keeping more cash on hand?
Investment Opportunities
During a recession, assets are undervalued. The prices of some of the most expensive investments will be at a discount.
Millennials are preparing for the recession by keeping more cash on hand so they can buy undervalued assets at a discount. When the price of stocks dip, millennials will be able to step in and purchase undervalued assets at a cheaper price, increasing their potential to reap huge profits when the economy recovers.
This is the time to make a large purchase such as the acquisition of fine art or an opportunistic investment. Wealthy millennials also take advantage of a rising trend.
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Recession Preparation
Ray Dalio, a billionaire investor and founder of the world’s largest hedge fund firm, thinks the economy will sink into a recession by 2020. And he’s not alone. More than 1/3 of Americans think a recession is coming soon and are doing what it takes to prepare and capitalize on economic meltdowns.
Millennials are keeping cash on hand to ensure their lifestyle is not jeopardized during a recession.During a recession, jobs are scarce and companies are downsizing employees. They want to quickly access the resources they need to make sure their household doesn’t skip a beat. After seeing the side effects of the 2008 financial crisis, millennials understand the importance of planning ahead. It’s better to be safe than sorry.
Liquidity Needs
In times of uncertain markets, being “liquid” is the most desired status for high net worth people. Liquidity is the ability to quickly convert assets to cash. Cash is the most liquid asset you can have in your portfolio. Wealthy millennials put their investment efforts towards positioning their portfolios to acquire things that will more than likely have value when the economy takes a dive.
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