Steven Petrov The Paw Print
The high liquidity shows that the richest people on the planet keep their money aside and wait for the right moment to invest
The world’s richest people have significantly increased their cash reserves throughout the last year, which is just another sign for their general unwillingness to invest on the world markets under the current market conditions. According to a study by Wealth-X and UBS, the billionaires keep around $600 million in cash on average per person, which roughly equals 19% of their wealth. The number has “jumped” tenfold since last year when these cash reserves were much lower, around $60 million. This significant increase in liquidity testify again for the willingness of the wealthiest to wait and pick the right moment to invest their fortunes in new business opportunities through the World’s financial markets or through the expanding of their current businesses. Just as an example we can look into how much money the world’s richest people have spent and invested in real estate. The number of $160 million per billionaire is relatively low representing only 20% of their cash reserves. The leading investment director in UBS Wealth Management, Simon Smiles, explains that the wealthy are looking for security and financial protection ever since the worldwide financial crisis of 2008. However, Smiles warns that the continuing increasing inflation threatens to decrease money’s value and advise his clients to be more risk prone with credit default swaps, interest swaps, and the derivatives in the markets. It seems that the bad memories of 2008-2009 and the growing uncertainties in the world’s markets are what makes the billionaires prefer bearing small losses due to inflation rather than risking it big by investing in the market.
Smiles also points out that the significant reserves in cash are not something that is particularly connected to billionaires only. Millionaires and multi-millionaires also prefer to keep between 20-30% of their wealth in cash, but the significant increase in the numbers of the super-wealthy is what stands out.
Usually the richest people in the world are the ones who are most aware of the fact that money that is not invested actually loses value, due to the opportunity cost that comes from not investing and the lost potential profits from these investments, as well as inflation. This is why it is interesting to see how the people who are expected to invest the most are actually not. It seems like the rich families still remember the financial crisis in 2008-2009, when the majority of them were rushing to liquidate their investments and get the cash in their hands where it is safe and secured. As an addition to that, Smiles points out that many of these rich and wealthy families missed out on the big recoveries and up movements of the market in 2012 and 2013 and are now afraid that the market is close to reaching its top, making them to hold on to their fortunes.
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