Wealth

This is what rich investors were doing with their cash as the market plummeted

Key Points
  • Ultra-wealthy investors were big buyers and sellers of stocks in late March and early April, according to a survey from Spectrem Group.
  • Fully 37% of rich investors bought stock during the three-week period that included the most recent market bottom on March 23.
  • Nearly half — or 48% — sold stocks during the same period.
  • The coronavirus pandemic has taken a toll on the economy as people shelter in place to help prevent the spread of Covid-19. 
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Here's how wealthy investors are approaching the coronavirus-driven volatility

Ultra-wealthy investors were big buyers and sellers of stocks in late March and early April, suggesting that the wild market swings brought on by the coronavirus pandemic have created opportunities for those with ready cash.

Investors with at least $15 million in investible assets were four or five times more likely than other investors to buy and sell stocks between mid-March and the first week of April, according to a survey from Spectrem Group, a wealth research firm.

Fully 37% of rich investors bought stock during the three-week period that included the most recent market bottom on March 23. Nearly half — or 48% — sold stocks during the same period.

By comparison, only 7% of less-wealthy investors — those with $100,000 to $500,000 in investible assets — bought stocks during the three-week period. And only 9% sold stocks, while 80% did not make any changes.

The active trading, and especially the buying, by the wealthy echoes one of the biggest investing lessons of the 2009 crisis. While many individual investors sold stocks in 2008 and early 2009 because they could no longer endure the losses, the wealthiest investors were trading far more actively, with many buying in early to mid-2009 on the back of monetary and fiscal stimulus. As a result, the wealthy investors who maintained or increased their exposure to stocks ended up recovering their wealth far more quickly than those who had bailed out of the market.

"Similar to the investment actions taken during the economic crisis, the wealthiest investors view the current market volatility as an opportunity to take advantage of lower market levels to purchase equities," said George Walper, president of Spectrem.

In the current crisis, the coronavirus pandemic has taken a toll on the economy as people shelter in place to help prevent the spread of Covid-19. Globally, there have been more than 2.4 million cases, with at least 168,500 deaths, according to data compiled by Johns Hopkins University.

By risking more, the wealthy may also lose more — at least in the short term. Fully 30% of investors with $15 million or more said they had "lost a significant amount" of their net worth, and 44% said they had lost "a fair amount." Among affluent investors — or those with between $100,000 and $500,000 — only 22% said they had lost "significant amounts" and 27% lost "a fair amount."

Affluent and rich investors are also loading up on cash. Investors with $100,000 or more in investible assets now have 32% of their portfolios in cash — the highest level since 2009, Walper said. Investors with $15 million or more have their highest cash holdings since 2008.

Walper said the heavy cash holdings likely suggest that investors expect another downmarket for more attractive buying prices — or that they just want a larger cash cushion for a prolonged market and economic slump.

A majority of investors with $100,000 or more expect markets will not recover to pre-crisis levels before the November election, according to the survey.

Correction. George Walper is president of Spectrem Group. An earlier version misspelled his name.