Most investors have way too much cash. Wealthy investors really have too much.
This is a phenomenon Citi Private Bank’s David Bailin has observed whether the markets are soaring, stumbling, or stagnant.
According to Federal Reserve figures, retail investors had about 18% of their assets in money market funds and in U.S. bank deposits, considered cash alternatives, at the height of the financial crisis in 2009. But today, they still have a high percentage in cash—around 14%... “If a client has US$100 million, why would they need US$15 million or US$20 million in cash?” Bailin asks. “They should have it fully invested—they may need US$5 million [in cash]”.Where to Put Cash InsteadCiti is recommending clients consider fixed-income managed accounts that can include a range of options, from a variable rate demand note—which is a municipal security with a weekly maturity, meaning it reprices each week—to a variable rate bank fund, backed by floating-rate bank loans that reset when interest rates rise or fall.
“We want things that won’t lose value in a rising rate market,” Bailin says.
For Citi’s clients with large cash positions, the cost of putting together a fixed-income managed account with varying maturities would be 0.20%.