Category: Sports

[Hotspot Analysis]US interest rate cuts are unfavorable to returns, but investors who love cash don’t care; ① As the Federal Reserve prepares to cut interest rates, the golden age of cash may be coming to an end. However, many fans who love cash remain calm. ② Data released by the Investment Company Institute (ICI) on August 21 showed that although the market increasingly believes that the Federal Reserve is ready to cut interest rates at its meeting on September 17-18, the size of US money market assets this month still reached a record high of US$6.24 trillion. ③ The interest rate cut is expected to eventually bring the yield on the money market down from more than 5%, a level that was unimaginable a few years ago. But so far, there is little evidence that individual investors are abandoning cash and chasing returns on stocks and bonds. According to data analysis company EPFR, about $100 billion flowed into the money market in August. ④ “We feel there is absolutely no need to move funds,” said Vance Arnold, a 71-year-old retired teacher and baseball coach from Fayetteville, Arkansas. About 80% of his seven-digit portfolio is invested in money markets and other cash equivalents. ⑤ He said money market yields have risen from near zero to “4.5%, 4.7%, and now over 5.2%. I can live with 4.5% again.” ⑥ The persistence of money markets is the latest example of how cash has re-emerged as an asset class that can compete with stocks and bonds, one of the most striking changes in the post-pandemic investment landscape. Despite stunning stock returns and expectations that the Federal Reserve will cut interest rates, money market assets have grown by $313 billion this year, according to Crane Data, which tracks money market funds. ⑦ Another reason wealth advisers say clients continue to hold on to cash is that after the S&P 500 has risen 18% so far this year and hit new highs, clients are concerned about overvaluation of stocks and uncertainty ahead of the U.S. presidential election. ⑧ But investors who hold too much cash may miss out on the often more generous returns of other asset classes. According to Hartford Funds’ study of rate-cutting cycles since 1928, cash returned an average of 2% in the 12 months after the Fed began cutting rates, while stocks returned 11% and Treasuries returned 5%. ⑨Anne Marie Stonich, chief wealth strategist at Coldstream Wealth Management in Seattle, has been advising clients to give up cash and move into assets such as government bonds, which can lock in gains if they hold these securities until maturity. She said that investors who are keen on cash do not appreciate her advice. “It’s easy for people to be complacent, but now it’s time to wake up and focus on moving cash elsewhere,” Stonich said.

August 30, 2024

[Hotspot Analysis]US interest rate cuts are unfavorable to returns, but investors who love cash don’t care; ① As the Federal Reserve prepares to cut interest rates, the golden age of cash may be coming to an end. However, many fans who love cash remain calm. ② Data released by the Investment Company Institute (ICI) on August 21 showed that although the market increasingly believes that the Federal Reserve is ready to cut interest rates at its meeting on September 17-18, the size of US money market assets this month still reached a record high of US$6.24 trillion. ③ The interest rate cut is expected to eventually bring the yield on the money market down from more than 5%, a level that was unimaginable a few years ago. But so far, there is little evidence that individual investors are abandoning cash and chasing returns on stocks and bonds. According to data analysis company EPFR, about $100 billion flowed into the money market in August. ④ “We feel there is absolutely no need to move funds,” said Vance Arnold, a 71-year-old retired teacher and baseball coach from Fayetteville, Arkansas. About 80% of his seven-digit portfolio is invested in money markets and other cash equivalents. ⑤ He said money market yields have risen from near zero to “4.5%, 4.7%, and now over 5.2%. I can live with 4.5% again.” ⑥ The persistence of money markets is the latest example of how cash has re-emerged as an asset class that can compete with stocks and bonds, one of the most striking changes in the post-pandemic investment landscape. Despite stunning stock returns and expectations that the Federal Reserve will cut interest rates, money market assets have grown by $313 billion this year, according to Crane Data, which tracks money market funds. ⑦ Another reason wealth advisers say clients continue to hold on to cash is that after the S&P 500 has risen 18% so far this year and hit new highs, clients are concerned about overvaluation of stocks and uncertainty ahead of the U.S. presidential election. ⑧ But investors who hold too much cash may miss out on the often more generous returns of other asset classes. According to Hartford Funds’ study of rate-cutting cycles since 1928, cash returned an average of 2% in the 12 months after the Fed began cutting rates, while stocks returned 11% and Treasuries returned 5%. ⑨Anne Marie Stonich, chief wealth strategist at Coldstream Wealth Management in Seattle, has been advising clients to give up cash and move into assets such as government bonds, which can lock in gains if they hold these securities until maturity. She said that investors who are keen on cash do not appreciate her advice. “It’s easy for people to be complacent, but now it’s time to wake up and focus on moving cash elsewhere,” Stonich said.