It’s long been said that cash is king, especially in uncertain times. Research from Flagstone and Censuswide released in March shows that 38 per cent of high-net-worth individuals (HNWIs) are holding more cash – 19 per cent of their wealth on average – than they were three years ago.
The survey of 100 HNWIs with over £100,000 in investable assets was conducted in December, before the Iran war whipsawed the markets and oil prices. However, it’s a sign that cash is playing a more prominent position in portfolios. More than four in 10 HNWIs said they would prefer to hold cash and wait for the right opportunity to come along to deploy it.
John Martin, Flagstone’s chief product officer, commented that “cash has been elevated in HNWIs’ eyes as a credible alternative to investing when the risk-reward trade-off elsewhere isn’t compelling.”
Why are more investors preferring to hold cash?
A combination of the events in Iran and fears of a private credit crunch may have some HNWIs wondering whether it would be prudent to increase their cash holdings. Stocks tumbled in the early days of the Iran war as concerns grew that disrupted oil supplies caused by the closing of the Strait of Hormuz would slow global growth. However, stocks have broadly reversed, with the main US indices closing at near record highs at the time of writing.
The upswing in stocks may be welcome, but there is still the risk that the situation in Iran could be prolonged – and even escalate further. Even if it doesn’t, the damage could already have been done. The UK is likely to be one of the hardest hit of all major economies, according to the International Monetary Fund, which expects the country’s gross domestic product to grow 0.8 per cent in 2026, down from a 1.3 per cent forecast in January.
Government bonds – typically a safe haven asset during market turbulence – have been falling as well, amid fears that central banks around the world might have to raise interest rates to tame inflation.
It’s no surprise, then, that HNWIs are looking to increase their cash holdings, says Samuel Leach, head of investor relations at real estate and investment platform TAB. “If the return on equities or other liquid assets looks compressed, it can make sense to step back. We’re seeing this particularly where investors feel they are not being adequately compensated for volatility.”
What are the risks of holding cash?
Holding cash to deploy into mis-priced and distressed assets may seem like a sensible approach. However, it’s only an ideal strategy for investors who have the ability to react quickly when market opportunities arise, Leach argues.
In reality, the average HNWI doesn’t have the time to be monitoring asset and equity price movements on a daily basis, let alone multiple times a day. This is where holding cash can become risky.
As Matthew Beck, chartered financial planner at independent financial advisor Smith & Pinching, explains, it creates a significant opportunity cost. In the near-term, investors sitting on the sidelines could miss out on a potential jump in equities. Over the long-term, holding cash weakens purchasing power because inflation pushes up the prices of goods and services, which can be detrimental to financial goals.
“HNW families need to consider this risk carefully to make sure they’re not overexposed and losing real value,” says Beck.
What percentage of your portfolio should be cash?
The question for HNWIs is what proportion of their wealth they should allocate to cash. “There’s no fixed percentage, but I’m seeing HNWIs typically hold 10-20 per cent in stable markets as a baseline for liquidity and flexibility,” says Leach. “This can rise to 20-30 per cent plus in uncertain conditions.”
Beck says: “Deciding what your cash allocation should be is a very personal choice. How much will depend on your stage in life, what you might need cash for and, of course, your risk appetite.”
He adds that there are likely to be demographic drivers behind an increase in the number of HNWIs opting to boost their cash reserves. With more Baby Boomers retiring and older Gen Xers approaching retirement age, it’s likely they’re going to want to downsize. This will release equity from properties, some of which will be put into lower risk assets like cash.
“These generations have seen exceptionally strong growth in both property values and stock markets over their careers, so many will have significant wealth that they may now be keen to reallocate,” says Beck.
Regardless of the percentage allocated to cash, both Beck and Leach agree that it’s wise to have a rainy-day fund. Beck recommends that HNWIs have enough funds to cover expenses for 12 to 24 months, plus a small additional reserve, depending on individual risk appetite.
For HNWIs who are more risk averse and don’t need access to cash in the near future, they may be better off parking some of their money in a fund that tracks an index like the MSCI World Index. These can be highly liquid yet low risk, providing a better return than the interest rates offered on current accounts.
“The biggest misconception is that holding on to cash is ‘doing nothing’. But, for many HNWIs, it’s a tactical decision to preserve capital and maintain optionality, particularly in late-cycle or uncertain environments. The strongest investors I work with don’t aim to always be fully invested; they aim to be correctly positioned,” concludes Leach.
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