A report released late last week by State Street's Center for Applied Research called "Stashing Cash Under the Mattress" finds that retail investors have dramatically increased their cash holdings, which includes assets in money market funds, as well as savings and checking accounts. (Sunday's New York Times first reported the study in "Fear of Equities Drives More Investors to Cash".) The State Street survey says, "Cash allocations have jumped in the past two years with the global average rising from 31% in 2012 to 40% in 2014. In the US, allocations rose from 26% in 2012 to 36% in 2014. This jump was equal across the age spectrum, with Millennials (under 33 years old), who are just starting their investment lives, increasing their allocations to cash at a similar rate as Baby Boomers (49-67 years old), who are starting to liquidate assets for retirement income. Traditionalist investors (over 67 years old) were allocated the highest at 43%, followed by Baby Boomers at 41%, Millennials at 40% and Generation X (33-48 years old) at 38%."

The report says investors are seeking comfort in cash. "Investors aren't able to stomach the volatility they perceive to be in play. The crisis of 2008 is burned into their memories. The younger generations in particular are wary of investing in what they perceive to be "risky" assets. Many of these investors experienced back-to-back crises and they simply don't trust the markets," says the study, conducted in the first quarter of 2014.

The NY Times article on the report says, "Why is this happening? Suzanne Duncan, global head of research at State Street's Center for Applied Research, chalked it all up to fear -- even though it has been more than five years since the Standard & Poor's 500 stock-index hit its low." "If it wasn't fear, there'd be a much different variation by age," Ms. Duncan said. "Certain cohorts need more liquidity than others. When you find consensus across age cohorts, you realize it's not for liquidity needs but lack of trust across all age and wealth levels."

As we mentioned in our June 2 "Link of the Day," a recent Wall Street Journal article, "Millennials Are Really Risk Averse," echoes State Street's findings. The WSJ article says, "More than half of people between the age of 21 and 36 have their savings parked in cash," citing a new study entitled "How Millennials Could Upend Wall Street and Corporate America," by the Brookings Institution. "The high cash allocations to accounts like bank CDs and money-market funds, which pay little-to-no interest, suggest young adults are reluctant to put money to work in the U.S. stock market, which has bounced back from the financial crisis and recorded numerous record highs over the past year," states the WSJ. "Citing data from UBS, the Brookings study found that 52% of millennials have their savings in cash. By comparison, all other age groups have 23% of their savings in cash. Millennials also say they only have 28% of their assets in stocks."

According to the new State Street report, "On average, investors save only 22% of their net income and 44% -- the largest proportion -- goes to cash." The rest of the average asset allocation goes like this: equities/stocks (14%), mutual funds (11%), bonds (8%), other (7%), gold/silver/commodities (4%), currency (4%), ETF (3%), inflation-protection products (2%), private equity (2%), and hedge funds (1%).

According to the State Street study, Japan, with 57% in cash, tops the list of the countries with the highest allocations to cash/money market investments. The Netherlands is second with 55% in cash/money markets, while Germany is third with 49%. The rest of the list is as follows: Singapore (46%), Switzerland (45%), Brazil (44%), France (43%), U.K. (43%), Australia (41%), U.S. (36%), Canada (34%), UAE (33%), Hong Kong (33%), Italy (32%), China (32%), and India (26%).

Over the past 2 years, money market mutual fund assets have been virtually flat, up $14 billion, or 0.5%. This compares to bank deposits, which have increased by almost $1 trillion over the past 2 years and well over $2 trillion the past 4 years. Though it's clear that bank savings and deposits have gained the lion's share of this cash buildup, the possibility of higher interest rates in the coming year or two makes it likely that money market funds will get their share of this new trend towards conservatism.

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