Yahoo Finance Jaspreet Singh: Millionaires Are Preserving Wealth by Making an Unusual Money Move
It’s a widely accepted financial rule of thumb that money is better off being invested where it has the potential to grow, rather than being held as cash where it actually loses value over time due to inflation. But in the current economy, many high-net-worth individuals are choosing the latter.
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Jaspreet Singh, in a recent YouTube video, explained why some millionaires are opting to keep money in cash rather than investments.
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Banks and Millionaires Are ‘Sitting on Tons of Cash’
Amid fears of a recession, many of those who have wealth are holding onto it.
“More and more people with money are predicting that there’s going to be economic pain ahead,” Singh said in the YouTube video. “Banks are sitting on tons of cash, sitting idle, waiting for the right opportunity. But here’s the interesting part — it’s not just banks that are doing this, it’s high-net-worth individuals as well.”
Singh said that many wealthy individuals are putting more money into short-term cash allocations, including checking accounts, savings accounts and CDs — and they’re doing this at unprecedented rates.
“It’s not just the fact that people and institutions with money are starting to save money — it’s the rate at which they’re saving money,” he said. “High-net-worth individuals stored 34% of their wealth in cash and cash equivalents in 2022, which is up 10% from 2021.”
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An Unusual Money Move
Storing more money in cash is counterintuitive, as this typically means you are losing money.
“Cash doesn’t do anything,” Singh said. “If anything cash loses value. If you put $100 in your back pocket today and you left it there, that $100 is going to have less buying power a year from now. Why? Because inflation exists.”
The reason why banks and high-net-worth individuals are storing more money in cash, despite the potential value loss caused by inflation, all traces back to their fears of a recession.
“Banks are getting worried about making loans,” he said. “They’re worried about what’s happening in the economy, and they’re worried that people might not be able to continue making the loan [payments] in the future. For high-net-worth individuals, they’re looking at what’s happening in the economy, and they’re saying, ‘Well, if I keep my money in cash or if I keep my money in a CD, that is a better return for me right now than me going out and investing the money because there’s risk with me investing that money. And if I’m seeing potential headwinds against the economy, I’m not going to want to take that risk.'”
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While the returns with a stock market investment are unknown, the returns from a high-interest savings account or CD are predictable. That’s why many millionaires are opting for the sure thing right now.
“[Millionaires are thinking], if I think that we might see the stock market fall, we might see the real estate market fall, I’m not going to take my money that’s sitting in my high-interest savings account paying 3%, 4% interest or my CD paying 4.5% interest,” Singh said. “[They’re thinking, I’m not going to] take the money out and risk it, where maybe I’m going to get a 7% return, but maybe I might see this money fall.”
During economic booms, millionaires would do the exact opposite with their money.
“If people said, ‘I think that we’re going to see a lot of growth in the markets in the coming years,’ no one’s going to want to keep their money in a high-interest savings account or in a CD where you’re earning 3%, 4%, 5% because you’re going to say,’Shoot, I’m going to get 10%, 12%, 15% returns in the markets,'” Singh said.
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