According to CNBC survey, millionaires are hoarding cash and betting on higher interest rates

According to the CNBC Millionaire Survey, millionaire investors are stocking up on cash piles and betting on higher interest rates and weak stock markets in 2023.

More than a third of millionaire investors, 34%, say they keep a larger portion of their money in cash, according to the survey, which surveys households with investable assets of $1 million or more. They now have 24% of their portfolio in cash, according to the survey, up from 14% a year ago.

Of the survey participants, 28% said they have bought more fixed income securities as they expect interest rates to remain high.

The results echo a recent Capgemini survey that found that global high net worth investors had a record 34% of their portfolios in cash or cash equivalents such as money markets, CDs and other vehicles.

“These investors are moving from growth to value and protection of their assets,” said Elias Ghanem, global head of the Capgemini Research Institute for Financial Services. “Right now it’s better to be safe than sorry.”

Wealthy investors remain cautious on the stock market, but not as pessimistic as they were at the beginning of the year. While 38% of millionaire investors say so S&P 500 The year will end in negative territory, with a slightly larger proportion (40%) expecting the market to end the year in positive territory.

This market sentiment has brightened significantly since last year, when 69% of survey respondents expected 2023 to end in negative territory, and just 22% expected markets to end in positive territory.

“They are increasingly comfortable with the market volatility and the fact that the markets continue to rise despite all the reasons why they should fall,” said George Walper, president of the Spectrem Group, which conducts the Millionaire Survey with CNBC. “A lot of people are just confused and don’t want to predict further declines.”

However, millionaires are more pessimistic about the economy as a whole. A majority of 60% expect the economy to be “weaker” or “significantly weaker” by the end of 2023.

One reason for their caution: inflation. Millionaire investors are still betting that inflation will linger for years and interest rates may stay high for longer. More than half of millionaires say inflation will not fall to the Federal Reserve’s 2 percent target for at least two years, with 11 percent saying it will last at least five years.

There are big differences between generations as an inflationary stock market and economy is a new phenomenon for younger investors. Three-quarters of millennial millionaires say inflation will fall to 2% within two years, and one in four say they will reach the 2% target within a year. In comparison, 59% of older investors say it will take longer than two years.

“You’ve never seen rate hikes and inflation like this,” Walper said.

Inflation and higher interest rates are beginning to affect the spending of the rich, although the changes are small. More than a third of millionaire investors have cut restaurant spending over the past six months due to inflation, and 18% have put off buying a car, according to the survey. More than one in four millionaire investors say they have given less to charity due to inflation, suggesting that higher prices could also impact giving.

According to the survey, if inflation continues, more millionaires (18% of respondents) say they will cancel a trip or vacation. They are also borrowing less, with a third saying they plan to borrow less this year due to higher interest rates.

A bright spot for millionaires are bank deposits. Despite the turmoil in the region’s banking system and the bankruptcies of Silicon Valley Bank, First Republic and Signature Bank, more than two-thirds of millionaires say they are not concerned or are “neutral” about the safety of their bank deposits. Only 7% said they were “very concerned”.

Only 6% of millionaires surveyed have withdrawn their cash deposits from a bank due to the collapse of the SVB. Still, two-thirds of millionaires support Congress raising the cash deposit limit, as regulated by the Federal Deposit Insurance Corporation.

“They saw the government take action quickly, so they weren’t that concerned,” Walper said.

CNBC’s Millionaire Poll was conducted online in April. A total of 764 respondents with investable assets of $1 million or more qualified for the survey. Respondents had to be the financial decision-maker or be involved in household financial decision-making. The survey is conducted twice a year, in spring and autumn.