October 26, 2012

Affluent Feel Stuffed With Cash, Ready to Invest: UBS Report

Affluent and high-net-worth investors plan to boost their investments after the election, the poll finds

Investors have built up considerable cash holdings since the start of the financial crisis and are positioned to increase their financial investments after the election, a recent UBS study found. Plus, affluent and high-net-worth investors are more optimistic than a year ago, according to UBS, in both the short and long term.

Nine in ten investors feel now feel they have enough or too much cash, the poll of 2,000-plus investors found. Investors with $1 million and up of investable assets—half of those polled—are more likely to move out of cash in the next 12 months than affluent investors—with $250,000 to $1 million of investable assets.  

“Most investors expect the election outcome to impact their outlook on the economy and investing, and accordingly, nearly half plan to revisit their financial plan post-election,” UBS explained in the report, which was released Oct. 18.

The following five trends were highlighted by UBS in the report:

1.   Investor optimism much higher than a year ago

Some 35% of investors are very or somewhat optimistic about the short-term economic outlook, up from 21% a year ago. While 38% are pessimistic, this number is dramatically lower than a year ago, when 60% of investors had a negative outlook, UBS says.

In addition, investors are much more likely to feel excellent or very good about their financial situation, a strong improvement from last year. This shift is due to their improving views associated with drops in the unemployment level, reduced market volatility and overall improved performance of the financial markets.

As for their long-term outlook, most investors are optimistic about the economy over the next three to five years. Two out of three are optimistic about the next 10 years.

As a result, nearly half of investors polled by UBS say they feel “highly confident about achieving their financial goals.”

2.   The flight to cash appears over

Investors have built up a large cash allocation in recent years, and the average cash holding is around 20% of most portfolios.

Some investors clearly “are starting to feel they have too much cash, and plan to begin decreasing these holdings over the next year,” UBS notes.

New money is increasingly being earmarked for investments rather than savings or debt payments. Close to 40% of high-net-worth investors would invest any extra money received immediately.

3.   Investors are starting to spend

After spending cutbacks of the past few years, investors have been spending more time and money on leisure and “experiential activities such as travel and dining out with friends and family,” the survey says.

For example, 37% have increased spending on travel in the last year vs. 26% who have decreased their travel spending.

When asked about their plans for the next year, 39% plan to increase travel spending.

4.   Investors remain concerned with economic issues

Six in 10 investors say they are highly concerned with the size of the national debt and with rising healthcare costs—the top two concerns overall.

In addition, a large number, 56%, of investors have become quite anxious about the 2012 elections, and 39% are now concerned about possible tax changes tied to the elections vs. 31% a year ago.

5.   Half of high-net-worth investors plan to revisit their financial plans after Nov. 6

Nearly half of high-net-worth investors plan to revisit their financial plans after the election, the UBS poll finds.

Overall, “signs point to increased action post-election,” the report concludes.

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