Are the rich really giving up? And yep, $500 entry fee is low

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Super-rich Americans are giving up on the stock market, holding historic levels of cash — here's why and what they're plowing their wealth into

Across the country, America’s super-rich have reduced their exposure to the stock market by the most dramatic margin in years, according to recent data from the Capgemini Research Institute.

High net worth individuals — defined by Capgemini as those with $1 million or more in investable assets — held over 34% of their portfolios in cash as of January 2023. That’s the highest level since at least 2002. It’s also significantly higher than the 24% cash exposure these investors had last year.

Ultra-high net worth individuals and billionaires seem to be following a similar pattern. Warren Buffett’s Berkshire Hathaway, for instance, added $2 billion to its cash reserve in the first quarter of 2023, bringing its cash balance to $130 billion.

By comparison, wealthy investors had just 23% of their net assets in publicly traded stocks. That’s the lowest level of stock exposure in 21 years, according to the report. Rich Americans seem to have given up on the stock market, even as some stocks rebound.

The retreat of the ultra-wealthy from the stock market could offer some early warning for retail investors.

Super-rich are in ‘wealth preservation’ mode
“Wealthy investors are still in wealth preservation mode,” CNBC wealth editor Robert Frank said in a recent interview on the channel while dissecting Capgemini’s report. More than two-thirds of investors surveyed said preserving their capital was a top priority right now.

Rampant inflation and rising interest rates have made stocks less attractive. Meanwhile, cash and cash equivalents can generate better-than-anticipated returns. A two-year U.S. government treasury bond currently offers a yield of around 4.9%.

By comparison, the S&P 500 currently offers an earnings yield (inverted price-to-earnings ratio) of 4%.

Given their higher level of volatility and risk, stocks are only an attractive investment if they offer a significantly better return than safer options like U.S. government bonds.

With returns on very low-risk investments so elevated, wealthy investors may be seeing better alternatives elsewhere.

Read more: 3 big mistakes people make with cash back credit cards that cost them every time they swipe

Better alternatives
The latest UBS Global Family Office Report, which surveys families with over $100 million in investable assets, also tells the story of investors looking at alternative assets and fixed-income securities.

People in this group of the ultra-rich are planning to increase their exposure to these types of safer, more predictable fixed-income securities from 12% to 15% this year, the report says.

Private equity and private credit was also on these families’ radars.

Returns on private credit deals could be in the 12-to-15% range, which is significantly attractive, CNBC’s Frank said in his interview.

Opportunities for retail investors
Unfortunately, with the barrier to entry on private equity or private credit so high, retail investors don’t typically enjoy the same access to alternative investments as the wildly wealthy. The barrier to entry for private equity or private credit is simply too high.

However, there are plenty of new ways for investors to fight inflation outside of the volatile stock market.

Traditionally, alternative investments have been the purview of institutional investors and ultra-high-net-worth individuals. But new platforms are demystifying niche markets and making it easier and cheaper to buy in, especially for non-accredited investors.

These platforms give retail investors access to a range of private market investments that typically have a low correlation to the stock market.

The bar for entry is also relatively low, with some platforms requiring a minimum investment of just $500.