Mega-rich Americans are shifting their wealth away from stocks and bonds towards cash and alternative investments, driven by market volatility and inflation fears, with notable figures like Warren Buffett and Peter Thiel increasing cash reserves and diversifying their portfolios.
The Federal Reserve's recent interest rate cuts are reducing returns on high-yield savings accounts, challenging Gen Z and young investors who have favored cash savings, potentially impacting their long-term wealth growth. Experts advise balancing cash reserves with investments in assets like stocks, bonds, and alternative funds to optimize financial health amid changing interest rates.
Akre Capital's John Neff discusses lessons from stock-market drawdowns, emphasizing the importance of investing in high-quality companies and increasing cash reserves during uncertain times, based on recent research and market experiences.
London-based money managers Ruffer & Co. are holding nearly 60% of their flagship Total Return fund in cash and short-term bonds, along with 20% in longer-term inflation-linked bonds, gold, safe-haven Japanese yen, and put options on the market. With only 15% exposure to the stock market, the fund is preparing for an imminent stock-market crash. Ruffer's bearish stance reflects their belief that record monetary tightening and cracks in the US economy will lead to a major reckoning, where inflation, government debts, and higher bond yields wreak havoc on stock-market valuations. While the firm's bearish bets have resulted in underperformance this year, they maintain that the liquidation event has only been postponed, not canceled.
The Federal Reserve announced another 25 basis points rate hike, retaining a hawkish tone and signaling more policy firming to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time. Investors should be wary of regional banks, as the risk of bank runs could shake confidence, and small businesses may transfer their deposits to bigger banks. Investors should allocate more cash that holds U.S. Treasury for the portfolio, as its risk-free return is more attractive than equities at this time.