Market Wariness Leads Investors Toward Cash

Reflecting ongoing concerns over the prolonged economic downturn and stock market volatility, nearly half (47 percent) of Mass Affluent investors recently surveyed by Millionaire Corner said they will be investing in cash or cash equivalents over the next year.

Not that they will be keeping completely on the sidelines. Just over a third (34 percent) said they will invest in equities, including stocks or stock mutual funds, while 26 percent will invest or invest more in more conservative fixed income instruments such as bonds or bond mutual funds.

The euro zone crisis has not completely scared off households with a net worth between $100,000 and $1 million (not including primary residence). Eighteen percent said they would likely be investing, or investing more, in international investments. Of these, nearly a quarter (24 percent) are investors under the age of 55. This age group is also slightly more likely to be investing in equities in the coming year, which suggests at least a more moderate risk tolerance.

In separate investor surveys, a majority of investors at this wealth level have expressed elevated concerns over the economy. Just over six-in-ten said they were concerned about a further downgrade of the U.S. debt rating. The market careened wildly last August after Standard and Poor’s made the unprecedented decision to lower the country’s debt rating one notch. One of the reasons cited for the action was Congress’ inability to work together to come up with a debt reduction plan.

In the interim, the Congressional supercommitte failed to resolve divides over taxes and spending to make any cuts in the country’s $15 trillion debt. Other crucial deadlines loom for agreements on extending the payroll tax cut and extending unemployment benefits.

Government inaction coupled with partisan sniping have been felt on Wall Street. On the day the supercommittee threw in the towel, stocks dropped more than 2 percent. So it is not surprising that in another recent Millionaire Corner survey of investors at this wealth level, more than seven in-ten said they were very concerned about stock market volatility.