Across the country, America’s super-rich have reduced their exposure to the stock market by the most dramatic margin in years, according to recent data from the Capgemini Research Institute.

High net worth individuals — defined by Capgemini as those with $1 million or more in investable assets — held over 34% of their portfolios in cash as of January 2023. That’s the highest level since at least 2002. It’s also significantly higher than the 24% cash exposure these investors had last year.

Ultra-high net-worth individuals and billionaires seem to be following a similar pattern. Warren Buffett’s Berkshire Hathaway, for instance, added $2 billion to its cash reserve in the most recent quarter, bringing its cash balance to $130 billion.

By comparison, wealthy investors had just 23% of their net assets in publicly traded stocks. That’s the lowest level of stock exposure in 21 years, according to the report. Rich Americans seem to have given up on the stock market, even as some stocks rebound.

The retreat of the ultra-wealthy from the stock market could offer some early warning for retail investors.

Super-rich are in ‘wealth preservation’ mode

“Wealthy investors are still in wealth preservation mode,” said CNBC Wealth editor Robert Frank in a recent interview dissecting Capgemini’s report. More than two-thirds of investors surveyed said preserving their capital was a top priority right now.

Rampant inflation and rising interest rates have made stocks less attractive. Meanwhile, cash and cash equivalents can generate better-than-anticipated returns. A two-year U.S. government treasury bond offers a yield of 4.59%. That’s the highest interest rate have been on risk-free investments since 2007.

By comparison, the S&P 500 currently offers an earnings yield (inverted price-to-earnings ratio) of 4%.

Given their higher level of volatility and risk, stocks are only an attractive investment if they offer a significantly better return than safer options like U.S. government bonds.

With returns on very low-risk investments so elevated, wealthy investors are probably seeing better alternatives elsewhere.

Better alternatives

The UBS Global Family Office report, which surveys families with over $100 million in investable assets, also tells the story of investors looking at alternative assets and fixed-income securities.

People in this group of the ultra-rich are planning to increase their exposure to these types of safer, more predictable fixed-income securities from 12% to 15% this year, the report says.

Private equity and private credit were also on these families’ radars.

Returns on private-credit deals could be in the 12-to-15% range, which is significantly attractive, CNBC’s Frank said in his interview.

Opportunities for retail investors

Unfortunately, with the barrier to entry on private equity or private credit so high, retail investors don’t typically enjoy the same access to alternative investments as the wildly wealthy. The barrier to entry for private equity or private credit is simply too high. However, there are some attractive opportunities on the horizon for average investors.

The SPDR Portfolio High Yield Bond ETF, for example, offers a yield-to-maturity of 8.81%. This fund invests in corporate bonds that are below investment-grade, and therefore carry more risk. Meanwhile, investment-grade corporate bonds with a AAA credit rate currently offer an average yield of 4.74%.

With fixed-income yields growing, retail investors might consider parking some cash in these instruments. Bonds haven’t been popular in decades, but as investors search for a safe and steady place to park their wealth, they’re seeing a resurgence.