Rich people are hoarding cash

[hdas]

FT Report

Rich people are hoarding cash, and wealth managers are getting frustrated

....Yet perception of risk is an emotional thing. If people feel comfortable paying extra money in the form of negative rates for the known loss they will suffer on cash versus the unknown and potentially larger loss on riskier assets, it can be hard for wealth managers to talk them out of it. At least, unlike gold bars buried in the ground, finding where their money is will not be a problem, so in that respect the cash-rich could be doing worse in terms of portfolio protection. Wealth managers may need to respect that.

[LilyFleur]

The article defines high net worth individuals as having $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

But, "Fees are generally payable on a quarterly basis. Most programs do not have a minimum annual fee. For most UBS investment programs, the maximum annual fee is 2.50% of assets under management."

I think UBS has a different subset of HNW individuals, as their fees seem to be not on a par with Vanguard, Schwab and Fidelity.

[hdas]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this. But I do know some ppl with that and more and they are not BH’s.

Cheers

[Jack FFR1846]

So as to not go in circles, trying to read the article: https://www.ft.com/content/7ebfa850-bf2 ... bab8a70848

$1M as high net worth? Hahahaha

In 1960 America, sure. Today, not so much.

[AHTFY]

With 27.9% of their assets in cash, that's a lot of potential future demand for stocks, bonds, real estate, etc.

In reality, though, we'd want to know how this compares to the past. What was this number circa 2006 before the bubble burst?

[Stinky]

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this.

Yes, there are BHs with more than $8 million in assets.

Trust me.

[ResearchMed]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this. But I do know some ppl with that and more and they are not BH’s.

Cheers

Re your $8 million figure..

Several years ago, there were some spreadsheets made where BHs could enter a bunch of financial info, such a income, house value, etc., and "total net worth".
(IIRC, these were not identified by User ID.)

There were at least a few with 8 digits.
I don't remember seeing any with 9.

RM

[retiringwhen]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this. But I do know some ppl with that and more and they are not BH’s.

Cheers

Median NW by Age cohort of head of household

Age 35 or younger: $11,100
Age 35-44: $59,800
Age 45-54: $124,200
Age 55-64: $187,300
Age 65-74: $224,100
Age 75 or older: $264,800

$1M is still much much more than the VAST majority of American households.

Source: https://www.cnbc.com/2019/05/14/the-net ... amily.html

[Artsdoctor]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this. But I do know some ppl with that and more and they are not BH’s.

Cheers

Actually, there are quite a few Bogleheads with investable assets at > $8M. The diversity on the forum is pretty impressive.

The figures in the FT report seem awfully high to me. 25% of investable assets in cash is surprising. The article doesn't really tease out what's going on with specific countries and the investment firms are international conglomerates.

[Stormbringer]

Stocks near record highs.
Bonds near record highs.
Talk of a global recession.

Accumulating some cash doesn't sound all that terrible to me.

[retiringwhen]

BTW, this graphic is very misleading it describes 1Q18 vs. 1Q19 by relative asset proportions........

Well, Equities took a 20% haircut in Dec 2018 after a nearly flat 2018. The decrease in equities is about 25% of its exposure which is reasonably close to that haircut. The other increases are in alternatives and fixed income. It seems that sometime during that 12 mos. the folks moved their funds toward alts and fixed income. Looks like mostly folks didn't rebalance, but if they did, it went to alternatives.

BTW, All else being equal, if equites were the only drop, the resulting cash holdings would have been 29.4% instead of 27.9% This means that the average investor put an additional 1.5% of cash to work during that year.

Also, real estate was reduced a bit as well at a time when I don't think real estate prices were really dropping.

[goodenyou]

Rich people have many luxuries. One of them is the ability to hoard cash.

[Ferdinand2014]

Having lots of ready cash is a great thing.

[visualguy]

Isn't "cash" (CDs, MM, etc.) returning about the same as "fixed income" these days? Does it really make sense to make a distinction between those two for the purpose of this discussion?

[delamer]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

But, "Fees are generally payable on a quarterly basis. Most programs do not have a minimum annual fee. For most UBS investment programs, the maximum annual fee is 2.50% of assets under management."

I think UBS has a different subset of HNW individuals, as their fees seem to be not on a par with Vanguard, Schwab and Fidelity.

Maybe they are hoarding cash in order to pay the 2.5% AUM fee!

[Karamatsu]

I think the article is just noise. With the curve inverted and the 90-day T-bill (typically considered a cash-equivalent) yielding 1.96% that's not bad return at all.

[snackdog]

Several years ago, there were some spreadsheets made where BHs could enter a bunch of financial info, such a income, house value, etc., and "total net worth".
(IIRC, these were not identified by User ID.)

There were at least a few with 8 digits.
I don't remember seeing any with 9.

RM

This was the result. High nearly $60,000,000. By now somebody may have hit 9 figures.

[GoldenFinch]

Stocks near record highs.
Bonds near record highs.
Talk of a global recession.

Accumulating some cash doesn't sound all that terrible to me.

I remember quite a few people who acted on feelings like that in 2014 and regretted it a few years later because they didn’t “get back in.”

[Richard1580]

27.2% to 27.9% is an increase of 2.5%. That is a rounding error.

[willthrill81]

27.2% to 27.9% is an increase of 2.5%. That is a rounding error.

Beat me to it!

This is not even remotely news.

Part of the reason for the tiny increase is actually very simple and logical: cash equivalents are paying almost as much as many fixed income instruments.

[Stormbringer]

Stocks near record highs.
Bonds near record highs.
Talk of a global recession.

Accumulating some cash doesn't sound all that terrible to me.

I remember quite a few people who acted on feelings like that in 2014 and regretted it a few years later because they didn’t “get back in.”

True, but I also remember people who were "all in" in 2008, and then when they were laid off they had to raid their retirement accounts and sell assets at the bottom. Rich people have the luxury of scaling back on risk and playing it safe.

[LilyFleur]

Sometimes cash just sort of drops unexpectedly into your lap. I would imagine that happens to high net worth folks more often than people living paycheck to paycheck. And, the windfall advice here on this forum seems to be "don't do anything right away," which would result in people having cash in their portfolios.

Indeed, rich people have the luxury of low risk or high risk portfolios. Either way, they're fine.

My first question when I saw the original post was, "What is rich?"

[smectym]

“what is rich”

I think the lowest number for net investable assets where just about everyone will say, “ok, you’re rich, alright?!” Is $30 million. I use that because several trusts that preen themselves on offering white-glove service to “the rich” name $30 million as the minimum. Bessemer Trust is an example. Here’s a Bloomberg piece from 2018, which may or may not be paywalled depending on your prior metered access to Bloomberg content: they put the bar at $25 million

https://www.bloomberg.com/news/articles ... 25-million

[mrspock]

So as to not go in circles, trying to read the article: https://www.ft.com/content/7ebfa850-bf2 ... bab8a70848

$1M as high net worth? Hahahaha

In 1960 America, sure. Today, not so much.

Investopedia and Wikipedia both indicate HNWI is $1m and VHNWI is >$5m . They don’t bother making the next distinction until $30m. This kind of makes sense, at $5m you are in a different place... very likely no longer work because you need to, more likely interested in capital preservation etc. At $30m .... your are very different again, you can probably hire full time employees to aid your lifestyle.

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

[whodidntante]

If rich people are not hoarding cash, who do we think has it?

[mrspock]

“what is rich”

I think the lowest number for net investable assets where just about everyone will say, “ok, you’re rich, alright?!” Is $30 million. I use that because several trusts that preen themselves on offering white-glove service to “the rich” name $30 million as the minimum. Bessemer Trust is an example. Here’s a Bloomberg piece from 2018, which may or may not be paywalled depending on your prior metered access to Bloomberg content: they put the bar at $25 million

https://www.bloomberg.com/news/articles ... 25-million

Completely absurd and devoid of empathy. To lump those with >$1m (never mind 10m!) investable, with the middle class is detached from the reality of the actual middle class ... these sorts of views are considered by many tone deaf and even insulting to the plights of the middle class.

[ThereAreNoGurus]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

Home equity is excluded in all percentiles listed below (edited for clarity)

For those between the ages of 50-54 one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

[mrspock]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

For those between the ages of 50-54 (excluding home equity) one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

Let me rephrase: the vast (vast) majority. My point stands.

[ThereAreNoGurus]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

For those between the ages of 50-54 (excluding home equity) one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

Let me rephrase: the vast (vast) majority. My point stands.

I don't think your point still stands. Very few is unusual or rare. 85th percentile is not unusual or rare. One could say a solid majority have less than a million bucks, but it's clear that many folks do have more than a million dollars and it's not a skewed reality to think so.

I suspect you were probably surprised by the number of wealthy people in the 50-74 age class. (I stopped looking, but would guess it continues in similar fashion for the last two age cohorts.)

When I mention stats like the above, most folks are quite surprised.

[bck63]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

For those between the ages of 50-54 (excluding home equity) one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

Let me rephrase: the vast (vast) majority. My point stands.

I don't think your point still stands.

Yeah, it does.

[visualguy]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

For those between the ages of 50-54 (excluding home equity) one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

Let me rephrase: the vast (vast) majority. My point stands.

I don't think your point still stands. Very few is unusual or rare. 85th percentile is not unusual or rare. One could say a solid majority have less than a million bucks, but it's clear that many folks do have more than a million dollars and it's not a skewed reality to think so.

I suspect you were probably surprised by the number of wealthy people in the 50-74 age class. (I stopped looking, but would guess it continues in similar fashion for the next two age cohorts.)

When I mention stats like the above, most folks are quite surprised.

It really depends on where in the country you live. In some areas, you are surrounded by such people, but they are a lot more rare in other areas. It's one of those things like COL which vary a lot across the country, but, yes, there are many in the US that fall into that group. Just more common in some areas than others.

[ThereAreNoGurus]

It really depends on where in the country you live.

Of course, that should be obvious. This is true for many things reported in the aggregate. In many cases it would be surprising to see an even distribution.

[ResearchMed]

“what is rich”

I think the lowest number for net investable assets where just about everyone will say, “ok, you’re rich, alright?!” Is $30 million. I use that because several trusts that preen themselves on offering white-glove service to “the rich” name $30 million as the minimum. Bessemer Trust is an example. Here’s a Bloomberg piece from 2018, which may or may not be paywalled depending on your prior metered access to Bloomberg content: they put the bar at $25 million

https://www.bloomberg.com/news/articles ... 25-million

You (or "many of us here") are obviously in the nosebleed seats in terms of "height/total wealth".

Don't forget that for many people, a financial emergency requiring less $1,000 quickly would be a hardship.

For many in the lower/middle classes, the idea of "having a million dollars" is, well, a pipe dream.
Indeed, there have been some here on BH who worry that they don't have - and may never have - "that much".
And needless to say, it also depends upon one's cost of living.

I think here of MIL (now approaching 100), who was living alone before we moved her closer to us in an ALF (Assisted Living Facility).
She was living on combined TIAA annuity and SS survivor's benefits, and her income was about $2k per month.
DH and I still do not know "how she did it". (Nope, no social services or other supplements, and she also paid her own survivor health insurance out of that. Obviously, taxes were not a concern, of course!)
Needless to say, she was in a *much* lower cost of living area.
Fortunately, it turned out that she had hoarded a nice sum in CD's, but she had refused to touch one cent of that, so it is now being spent down for her current care in a very nice place.
But for a couple of decades, she lived at that <$25k/year (inflation adjusted in 2019 terms).

My parents had a bit more income, but not much more, but they had just about NO "sum" of extra cash for emergencies.
(They were absolutely, and very unfortunately, not prudent/responsible/knowledgeable concerning finances, but they, too, survived comfortably, also in a much lower cost of living area.)

Point is, there are many people, and many retirees/elderly for whom $1 million would seem to be almost requiring hitting the jackpot, and not something that anyone they know or even know *of* would have...
...and the idea of $30 million...!??

RM

[Dottie57]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this. But I do know some ppl with that and more and they are not BH’s.

Cheers

Median NW by Age cohort of head of household

Age 35 or younger: $11,100
Age 35-44: $59,800
Age 45-54: $124,200
Age 55-64: $187,300
Age 65-74: $224,100
Age 75 or older: $264,800

$1M is still much much more than the VAST majority of American households.

Source: https://www.cnbc.com/2019/05/14/the-net ... amily.html

It is interesting to see the huge difference between mean and median.

[ThereAreNoGurus]

It is interesting to see the huge difference between mean and median.

So true. I think median figures combined with percentile groupings gives a much better view of where people stand.

[CyclingDuo]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

For those between the ages of 50-54 (excluding home equity) one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

Let me rephrase: the vast (vast) majority. My point stands.

Yes, your point stands.

There are 127.59M households in the US. Of those, a grand total of 11.8M households have a net worth of at least $1M (that does not include the value of their primary residence). That means only 9.2% of US households have the potential to have 7 figures of that wealth tied up in investable assets.

Key findings include:

•In 2018, there were 31.2 million Mass Affluent households with a net worth between $100,000 and $1 million, NIPR. That is an increase of 200,000 households from 2017.

Edit: This group above is the largest club representing 24% of US households.

•The number of Millionaires, defined in the report as those with a net worth between $1 million and $5 million, climbed to 10.23 million, an increase of 250,000 compared with 2017. Including the wealth segments referenced below, there are 11.8 million Americans with a net worth of at least $1 million.

Edit: The group listed above represents only 8% of US households.

•The Ultra High Net Worth market, in which net worth is between $5 million and $25 million, grew to 1,397,000 households, an increase of 47,000 from 2017.

Edit: The Ultra High Net Worth group listed above represents only 1% of US households.

•There are now 173,000 households with a net worth exceeding $25 million, an increase of 1,000 households from the previous year. In the 2018 Market Insights report, there was an increase of 16,000 households with a net worth exceeding $25 million, so the 2019 report shows the growth in that wealth segment, as well as in all others, slowed considerably.


Edit: This last group is a very small club representing only .13% of US households.

https://spectrem.com/Content_Press/pres ... eport.aspx

Interesting statistics from Chris Hogan's book Everyday Millionaires: How Ordinary People Built Extraordinary Wealth—And How You Can Too...

•More than 50% of millionaires live in a neighborhood where the average household income is below $75,000 a year.

•Nearly one-third of millionaires live in a zip code where home values are below the national median average ($205,000 or less).

•Six out of 10 millionaires live in a house valued under $500,000.

https://www.daveramsey.com/blog/how-man ... ires-in-us

[edge]

No. It’s an increase of around 10%. Or an increase of 2.7 percentage points.

27.2% to 27.9% is an increase of 2.5%. That is a rounding error.

[bottlecap]

Cash is not hoarded.

But I can see why a money manger or financial journalist would feel that way sometimes.

JT

[DesertDiva]

So as to not go in circles, trying to read the article: https://www.ft.com/content/7ebfa850-bf2 ... bab8a70848

$1M as high net worth? Hahahaha

In 1960 America, sure. Today, not so much.

Investopedia and Wikipedia both indicate HNWI is $1m and VHNWI is >$5m . They don’t bother making the next distinction until $30m. This kind of makes sense, at $5m you are in a different place... very likely no longer work because you need to, more likely interested in capital preservation etc. At $30m .... your are very different again, you can probably hire full time employees to aid your lifestyle.

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

Right. A third of Americans have no savings at all. Another third have less than $1,000 saved. So even though a million bucks isn’t what it used to be, it is still a significant marker.

[an_asker]

The article defines high net worth individuals as have $1 million or more in investable assets. So, looking at that definition, we have a lot of those folks here at Bogleheads.

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this. But I do know some ppl with that and more and they are not BH’s.

Cheers

What do you mean by the phrase "they are not BH's"? That they don't post here? They don't own index funds? They are not online? Or something completely different?

I recall seeing a thread or two trying to define a Boglehead. Maybe it is time to define an "unBoglehead"

[Bacchus01]

No. It’s an increase of around 10%. Or an increase of 2.7 percentage points.

27.2% to 27.9% is an increase of 2.5%. That is a rounding error.

I’m pretty sure you’re not looking at the numbers you posted.

[stan1]

Rich people have many luxuries. One of them is the ability to hoard cash.

Right. Ability, need, and willingness to take risk. Wealthy people are able to take risk, don't need to take risk, but might be willing to take risk anyways.

[MotoTrojan]

Perhaps, but 1mm is just the cutoff, median, #HNWI is way higher. Think ~ 8 million. I don’t know of any BH with more $$$$ than this.

Yes, there are BHs with more than $8 million in assets.

Trust me.

My expenses for VTI alone are over $8M. You peasants!

[PVW]

Deleted.

[edge]

Yup. Juxtaposed the 7 and 9

No. It’s an increase of around 10%. Or an increase of 2.7 percentage points.

27.2% to 27.9% is an increase of 2.5%. That is a rounding error.

I’m pretty sure you’re not looking at the numbers you posted.

[Portfolio7]

Several years ago, there were some spreadsheets made where BHs could enter a bunch of financial info, such a income, house value, etc., and "total net worth".
(IIRC, these were not identified by User ID.)

There were at least a few with 8 digits.
I don't remember seeing any with 9.

RM

This was the result. High nearly $60,000,000. By now somebody may have hit 9 figures.

Of the BH population that answered the survey, if you are 45 or older with $1M of investible assets, well... that puts you roughly in the top 15% of American households, but also in the bottom 15% of the BH group that answered this survey. Might be 10% and 5% respectively, but was just drawing a general picture.

However, one has to recognize that this view of NW includes the PV of SS and Pensions, which depends heavily on assumptions, and there are a wide range of reasonable estimates... I would guess at current interest rates that for most BHs it's a little less than $1M +/- a half million. Then there is the pension on top of that.

So $1M of investible at that age could put you in the bottom 30% perhaps, after adding SS (and pension if you have one.)

That still puts BHs quite a bit above mean, let alone median. (Which is hardly unexpected for a self-selected group of investors like BH members.)

[goodenyou]

Maybe rich people will be highlighted on the show “Hoarders” where their homes are buried in piles of $100 bills. Can just imagine tripping over a large pile trying to get to the refrigerator!

[EddyB]

•The Ultra High Net Worth market, in which net worth is between $5 million and $25 million, grew to 1,397,000 households, an increase of 47,000 from 2017.

Edit: The Ultra High Net Worth group listed above represents only .01% of US households.

•There are now 173,000 households with a net worth exceeding $25 million, an increase of 1,000 households from the previous year. In the 2018 Market Insights report, there was an increase of 16,000 households with a net worth exceeding $25 million, so the 2019 report shows the growth in that wealth segment, as well as in all others, slowed considerably.


Edit: This last group is a very small club representing only .001% of US households.

I don’t think it changes your point, but your percentages are off by a couple of orders of magnitude.

[Sandtrap]

A "disconnect" happens after the mention, or inference of, "What wealth managers want or don't like. . . . "

j

[greg24]

Don’t let the Boglehead crowd skew your reality.... very few people will ever see 7 digits of investable assets.

I'm not so sure about that. According to this link: https://dqydj.com/net-worth-by-age-calc ... ed-states/

For those between the ages of 50-54 (excluding home equity) one million dollars puts you in the 90th percentile
55-59 85th percentile
60-64 84th percentile
65-69 86th percentile
70-74 86th percentile

I think that is more than a very few.

Spock said 7 digits of investable assets.

You list those with a net worth of 7 digits.

There is a HUGE difference. Many of those with a NW in the 7 digits are primarily driven by home equity.