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How Much Cash is Enough? Here’s How High-Net-Worth People Decide

In today’s inflationary economy, you might wonder how much cash to keep in your portfolio. So who better to ask than high-net-worth individuals?

While we didn’t ask high-net-worth people directly how much they keep in their bank accounts, a look at Personal Capital’s user data reveals the wealthy keep well less than half of their riches in cash.

Ahead, Michelle Brownstein, senior vice president of Private Client Group and certified financial planner, weighs in on why that is and gives readers a few steps to get started allocating their money to all the right places.

How much cash do the rich keep in their bank accounts?

To answer this question, let’s first define levels of wealth.

Industry definitions vary for people in different wealth categories. Below, our data is grouped according to the following wealth brackets:

  • High-net-worth individual: $1-5M net worth
  • Very-high-net worth individual: $5-30M net worth
  • Ultra-high-net-worth individual: more than $30M net worth

No matter how wealthy you are, financial planners usually recommend seeking advice from a fiduciary, since their ethical obligation is to the client — not upselling their company’s services and products to people with more money.

Personal Capital user data

To better understand how people spend, save and invite, we pooled anonymized data from millions of Personal Capital users who fall into different levels of net worth. The data revealed a common pattern: People tend to keep significantly less than 50% of their money in cash*.

But this behavior does seem to change as people jump from lower to higher net worths. Below are the median percentages and dollar amounts of a person’s portfolio kept in what we defined as “cash”*.

Less than $1M $1-5M $5-30M More than $30M
20s 28.30% $29,472.22 20.74% $101,580.89 34.43% $979,672.19 24.80% $200,954.00
30s 26.96% $40,537.68 20.10% $124,004.39 24.26% $550,776.60 29.50% $870,000.00
40s 27.37% $36,968.77 18.29% $133,875.91 19.84% $507,827.00 25.45% $938,707.12
50s 30.00% $32,956.37 17.15% $141,458.60 17.66% $535,958.77 28.56% $1,860,900.96
60s 34.96% $36,907.56 18.74% $162,152.28 17.37% $558,889.23 23.29% $1,879,521.52
70s 39.28% $44,928.58 20.78% $177,263.11 17.10% $538,769.63 27.81% $1,704,356.50
80s 42.01% $48,630.11 23.02% $184,881.49 14.77% $530,249.30 0.43% $233,847.79
90s 45.27% $50,335.81 22.79% $171,033.16 16.12% $650,408.66
No Age Data 42.26% $31,671.79 26.12% $170,344.78 27.44% $680,596.94 22.87% $2,506,996.60
Grand Total 28.57% $36,590.52 18.85% $137,119.86 19.12% $537,794.33 26.82% $1,290,839.32
*”Cash” primarily refers to funds inside a deposit account, such as a checking or savings account, uninvested cash in investment accounts, money market fund allocations, and the cash portion of an investor’s ETF/mutual funds. Data as of March 8, 2022.

 

According to Brownstein, her experience has been that younger people tend to keep more cash than older investors simply from lack of experience and a clear investment thesis. It takes some time to learn how you want to invest and why.

Additionally, younger people may have also experienced what’s known as a “liquidity event,” or coming into cash through the sale of a startup, receiving a lump-sum inheritance, or another major windfall.

“They didn’t necessarily save all that money over time, because they haven’t had enough years,” Brownstein says. “Maybe they sold the business, maybe their company went public. There’s likely a liquidity event that caused that [amount of cash].”

With windfalls often come a period of reflection, in which novice investors take time to decide their financial goals. “They don’t want to make a mistake, it’s more money than they’ve ever had,” explains Brownstein.

When someone’s net worth climbs steadily over the years, they have time to acclimate to their wealth slowly. It’s a gradual process involving many opportunities to adjust along the way.

Interestingly, however, people with net worths higher than $30 million do keep slightly more cash than those in the $5-to-30 million category (roughly 8% more). This may be because wealthy people perceive their financial standing as safe enough to keep more cash, and therefore feel less pressure to invest as efficiently as they could.

“They’re looking at it saying, ‘Well, I don’t have to invest this because I’ve kind of made it.’ So [ultra-high-net-worth people] often will carry more cash than is truly efficient.”

According to Brownstein, the most wealthy investors can arguably afford to be inefficient. She believes their position is that they have enough invested that if they have two years of cash sitting on the sidelines, they’re probably fine — but that doesn’t mean we all should keep up to 30% of our portfolio in cash.

What’s the right amount of cash to keep on hand?

From a financial planning standpoint, you should have cash of some kind in a savings account or multiple savings account. A general rule of thumb is to keep three to six month’s worth of expenses in an emergency fund.

“Keep a little more if you have inconsistent income,” Brownstein says. She also suggests setting aside more for major purchases in the next 12 to 18 months, such as a new car, a home, a vacation, or major renovations.

How to decide how much cash to keep in your portfolio

Step one is taking stock, Brownstein advises. Following are several considerations for deciding how much cash is appropriate for your financial situation:

  1. What’s my net worth?
  2. What are my monthly expenses?
  3. What are my upcoming major purchases? (buying a house, home renovation, major vacation, starting a business, etc.)
  4. What are my goals for the short term and long term?

“There are a lot of people who are really good at earning money, but they’re not really good at investing it,” Brownstein says. You might relate to this if you’re primarily focused on earning money in your career or through a business. As your career progresses and you begin to earn more, your cash might start to accumulate passively (or disappear!) if you don’t update your asset allocation to align with your new income and automate your savings and investments according to your priorities.

“That’s where a lot of the tools Personal Capital provides are really helpful,” Brownstein says. “They can tell you, ‘Hey, if you invested your cash, you’d have this much more at retirement,’ and call out if you have too much cash based on your spending.”

Get a handle on your money with Personal Capital’s free financial dashboard. You get a quick overview of your net worth, cash flow, investment allocation, and more. You can also plan for long-term goals like funding a child’s education or retiring.

If you’re letting your cash sit idle and not investing it appropriately, it’s worth stepping back and asking yourself why.

“Is there an actual financial reason, or is it an emotional decision?” asks Brownstein. “I think unfortunately, a lot of people make very emotional decisions with their money, whether it’s sitting on too much cash or buying into one company too heavily. There are lots of classic mistakes we see.”

Get Started with Personal Capital’s Free Financial Tools

 

Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.
Megan DeMatteo is a former CNBC money reporter and Pushcart-nominated poet. She now contributes to various publications with a specialization in personal finance.
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