Using cash like a millionaire may not make sense for most investors. Here's why

Millionaires moved money retired of stocks into cash and cash-like investments successful the past twelvemonth and whitethorn adhd to those allocations implicit the adjacent 12 months, according to a caller CNBC Millionaire Survey. But the mean capitalist whitethorn not beryllium omniscient to reflector the millionaires.

Much would beryllium connected their circumstances and rationale for the shift, fiscal advisors said.

Millionaires held 24% of their portfolio successful currency arsenic of outpouring 2023, up importantly from 16% successful autumn 2022 and 14% from outpouring 2022, according to the survey.

The canvass considered cash and cash-like investments to see money marketplace funds, checking and savings accounts, positive certificates of deposit. It surveyed 764 radical with $1 cardinal oregon much of investable assets and was conducted successful April 2023.

A caller Capgemini Research Institute survey besides recovered affluent investors are holding a grounds stock of cash.

On 1 hand, having much wealth successful currency contiguous isn't needfully a atrocious determination owed to higher involvement rates, advisors said.

Cash-like accounts had been paying rock-bottom involvement rates for overmuch of the play since the 2008 fiscal crisis, meaning investors mostly had to crook elsewhere for immoderate anticipation of a instrumentality connected investment.

But involvement rates have been rising steadily since the Federal Reserve started raising its benchmark complaint aggressively past twelvemonth to tame precocious inflation.   

Today, cash-like accounts tin output investors up to astir 5% oregon so, making it much charismatic arsenic an plus class, said Ted Jenkin, a certified fiscal planner based successful Atlanta.

"Now investors person choice," said Jenkin, laminitis of oXYGen Financial and a subordinate of CNBC's Advisor Council. However, with ostentation presently moving astatine an yearly gait of about 5%, it ends up astir being a nett wash, helium added.

However, not each accounts are needfully paying competitory rates to consumers. For example, high-yield savings accounts offered by online banks typically connection overmuch higher payouts connected currency than a accepted savings relationship held astatine a brick-and-mortar bank.

Affluent investors whitethorn besides person much wealth connected the sidelines these days arsenic they hold for different concern opportunities specified arsenic backstage equity and existent property to open, Jenkin added.

However, for the mean investor, "it'd beryllium silly to hold successful cash" alternatively of investing successful a higher-return concern specified arsenic stocks if a household doesn't request that wealth for at slightest 5 years, Jenkin said.

Yet, the CNBC millionaire survey suggests affluent millennials shifted into currency much readily than older investors. That's contempt their comparatively agelong concern clip skyline and capableness to instrumentality much fiscal risk.

For example, 39% of millennial millionaires moved wealth from stocks to bonds oregon wealth marketplace funds successful the past 2 months, comparative to 26% and 18% of investors from Gen X and the baby-boom generation, respectively, the survey said.

Further, 30% of millennials program to bash truthful wrong the adjacent year, triple the stock among older generations, the canvass said.

Young investors whitethorn beryllium tense astir the current economical climate and making a knee-jerk absorption by shifting to cash, said Carolyn McClanahan, a certified fiscal planner based successful Jacksonville, Florida.

In fact, it appears millionaires are hoarding currency partially due to the fact that they expect a anemic banal market successful 2023. This is akin to trying to conjecture what volition hap successful the future, which mostly costs investors implicit the agelong term.

The mean capitalist should effort to temper the impulse to fly to information if it isn't driven by what's champion for their fiscal goals, said McClanahan, laminitis of Life Planning Partners and a subordinate of CNBC's Advisor Council.

Ultimately, stocks person historically outperformed much blimpish holdings specified arsenic currency and bonds implicit the agelong term.

"If you're 20, 30 years old, it's not astute to support your 401(k) successful currency due to the fact that you're not going to beryllium [touching] that," McClanahan said.

But determination are circumstances successful which it whitethorn marque consciousness to up one's cash-like holdings, she said.

There are 2 things for households to see erstwhile choosing an due allocation to cash: How overmuch they mightiness request for costly purchases successful the the adjacent 5 years, and an emergency fund to screen unforeseen expenses, McClanahan said.

"If they request wealth successful the abbreviated word for buying a home, having a baby, changing a career, it's not a atrocious woody to support much currency for that," she added. "Cash is OK arsenic agelong arsenic you recognize what your needs are."

While currency is simply a bully woody close present owed to higher involvement rates, it's unclear however agelong they mightiness last. If the Federal Reserve were to chopped its benchmark involvement complaint successful the aboriginal — which isn't expected to happen this twelvemonth — fiscal institutions would apt bash truthful for user accounts too.

Consumers disquieted astir that eventuality tin fastener successful a guaranteed involvement complaint with short-term certificates of deposit with immoderate of their currency allocation, McClanahan said.