Personal Finance

Main St. America remains upbeat, as wealthy hoard cash

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Main Street investors are feeling upbeat about their finances ahead of the Presidential election, even as the wealthy are hoarding cash, two new surveys show.

Eighty-four percent of wealthy investors said that the upcoming election will have a significant impact on their financial health, according to a soon-to-be-released UBS survey.

Though high-net-worth investors usually keep an average of 20 percent of their portfolios in cash, now many of the wealthiest UBS clients have at least 25 percent in cash because of the election, Bob McCann, who chairs the Americas division of UBS, told Reuters. The bank surveyed more than 2,200 high-net-worth investors.

Meanwhile, average American investors are feeling more optimistic about their future. To that point, 46 percent said their finances will stay the same and 39 percent expect their lot to improve over the next year, according to the Heartland Monitor Poll released on Wednesday by Allstate and Atlantic Media.

That positive attitude contrasts with 92 percent of those surveyed in the Heartland poll who said they believe the nation's political system is not working well enough to solve the country's problems. (See chart below.)

"This dichotomy between the dour view of the direction of the country and how people see their finances is a picture that hasn't changed," said Bill Cullo, managing director for FTI, the research firm that conducted the survey of 1,000 individuals. Only 4 percent of those surveyed made $200,000 or more.

Daniel Lash, a certified financial planner in Vienna, Va., has been persuading his clients not to change their portfolios as the voting nears.

"Elections shouldn't determine your investment strategy," Lash said. "It comes back to what clients' goals are. Trying to make predictions about the future is not a great way to plan."

If history is a guide, wealthy investors may be overreacting to the effect an election will have on returns. There have been 22 elections since the S&P 500 index began. In these election years, 18 of the 22 generated gains for investors. When a Democrat was in office and a new Democrat was elected, the total return for the year averaged 11 percent. When a Democrat was in office and a Republican was elected, the total return for the year averaged 13.2 percent. (See chart below.)

"The effect of the election will be as short-lived as the Brexit," Lash said. "In the end, it's all about corporate earnings and corporations aren't going change what they are doing because of the election."

Whatever happens in November, cash is a terrible investment for most people, wealthy or not, right now. One-year certificates of deposit yield 0.29 percent and most money-market funds are earning less than 1 percent.

"The world is always going from crisis to crisis," said Jonathan Kelley, a certified financial planner in Lakewood, Colo. "To invest on a regular basis through the cycle is the way to make money."