Don’t miss out on potential gains by keeping your money in cash

  • Cash has been a popular choice for investors in the past year
  • However, staying in cash may not be a smart move in the coming months
  • Investors have been drawn to cash due to volatile stock and bond markets
  • But now that the Fed plans to cut rates, cash will lose its appeal
  • Staying in cash means missing out on capital gains from bond prices
  • Reinvestment risk is a concern for cash investors
  • Yields on bonds tend to outpace yields on cash over the long term
  • Cash returns historically underperform a balanced portfolio of stocks and bonds
  • The probability of cash outperforming longer-duration bonds decreases over time
  • Yields start to decline before the Fed actually eases rates
  • Reinvestment risk is now more of a concern for cash investors
  • Holding some cash is important for short-term needs
  • Moving excess cash into long-term strategic allocation is recommended
  • Investing in intermediate duration high-grade fixed income is a sensible approach
  • Timing the rotation back into longer-duration bonds usually doesn’t work out

Sitting in cash has been a popular choice for investors in the past year, especially with the Federal Reserve’s interest-rate hike campaign. However, staying in cash may not be a smart move in the coming months. While cash has its advantages, such as capital preservation and low interest rate risk, there are several reasons why it could cost you in the long run. Firstly, by keeping your money in cash instead of bonds, you will miss out on potential capital gains when interest rates drop. Additionally, there is reinvestment risk, which means you may have to reinvest your cash at a lower rate in the future. Furthermore, yields on bonds tend to outpace yields on cash over the long term. Cash returns historically underperform a balanced portfolio of stocks and bonds. Even during a recession, cash returns barely half of what a typical portfolio would return. The probability of cash outperforming longer-duration bonds decreases over time. And with the Fed hinting at rate cuts in the future, cash will lose its appeal. While holding some cash for short-term needs is important, it is recommended to reallocate excess cash into long-term strategic allocation. Investing in intermediate duration high-grade fixed income is also a sensible approach, as it offers potential yield and capital appreciation. In conclusion, staying in cash may seem like a safe option, but it could cost you in terms of missed opportunities and lower returns. Don’t let your money sit idle, consider alternative investment options that can help you grow your wealth over the long term.

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Key People: Rebecca Boyd (Wealth Advisor at Frost Investment Services), Adam Hetts (Global Head of Multi-Asset at Janus Henderson), Matthew Palazzolo (Senior Investment Strategist at Bernstein Private Wealth Management), Chris Tidmore (Senior Manager in Vanguard’s Investment Advisor Research Center), Kathy Carey (Director of Research at Baird’s Private Wealth Management group)

Factuality Level: 7
Justification: The article provides information about the current state of cash investments and the potential risks and benefits of staying in cash. It includes quotes from wealth advisors and investment strategists to support its claims. However, the article does not provide a balanced perspective and does not mention any potential drawbacks or risks of investing in bonds or stocks.

Noise Level: 6
Justification: The article provides some useful information about the potential risks and drawbacks of staying in cash investments. It discusses the historical performance of cash compared to bonds and provides insights from experts. However, the article lacks in-depth analysis and doesn’t provide a balanced view of the topic. It also doesn’t provide much evidence or data to support its claims.

Financial Relevance: Yes
Financial Markets Impacted: The article discusses the impact of the Federal Reserve’s interest rate hikes on money-market funds and cash-like investments.

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article primarily focuses on the financial implications of staying in cash investments and the potential drawbacks of not investing in longer-term bonds. There is no mention of any extreme events or their impact.

Reported publicly: www.marketwatch.com