What if the caution of the 'super rich' ebbs?

Wed Jun 11, 2014 2:15am EDT
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By Mike Dolan

LONDON (Reuters) - Canny caution or bumbling oversight, the world's richest people have retained huge stockpiles of zero-yielding cash throughout the recent surge in financial asset prices.

Their persistence may have, counter-intuitively, prolonged the buoyancy of those very assets in the process - helping to inflate the outsize wealth of the super-rich further.

With the debate about rising inequality re-invigorated this year by French economist Thomas Piketty's best-selling book on ballooning wealth gaps, the spending and savings behavior of the so-called "plutonomists" has rarely seen more scrutiny or had more influence on the economy and markets.

Political clamor for redress through greater taxation of asset incomes, rents, gifts and inheritances may well build. But few expect much change in the rising wealth of the richest 1 percent of households or the 0.1 percent deemed 'high net-worth individuals.'

Yet as stock markets barreled to record highs - with the MSCI's all-country index up almost 30 percent over the past 18 months - investment advisors estimate up to 40 percent of their money remains un-invested and is still parked in deposits.

As the latest equity market surge began early last year, a benchmark survey by CapGemeni and RBC Wealth Management had average cash or deposit holdings among those global wealth investors at almost 28 percent - more than the 26 percent held in equity or some 20 percent in real estate.

Defining the richest 12 million savers as those with more than $1 million in investible assets - excluding their primary residences and collectibles - the survey's high cash holdings may simply reflect a preference for banking large slices of wealth rather than risking it in volatile markets.

And, to be sure, returns on the 70 percent of other investments would have paid handsomely enough anyway.   Continued...

Private motor yachts are docked at Gangplank Marina in Washington October 19, 2010.  REUTERS/Molly Riley