With interest rates rising, don’t miss the boat with your lazy cash stuck on the beach. BofA strategists say, “History suggests redemptions won’t begin until a year after the Federal Reserve starts cutting interest rates.” You still have plenty of time to consolidate with my favored Fidelity Investments and enjoy money market rates of around 5%. Farah Elbahrawy reports for Bloomberg:
Investors are still flocking to cash funds, and Bank of America Corp. strategists say history suggests redemptions won’t begin until a year after the Federal Reserve starts cutting interest rates.
Money-market fund flows rose in anticipation of the first cut over the past five rate reduction cycles, before inflows slowed meaningfully when the central bank actually started cutting rates, a team led by Michael Hartnett wrote in a note. Outflows began 12 months later, they said.
Investors are still in the phase of pouring into cash funds, which received $82 billion in the week through Wednesday, according to the BofA strategists who cited EPFR Global data. Money-market funds are annualizing $1.2 trillion of inflows, the second highest ever.
Cash funds have been seeing massive inflows for several months, far above other asset classes like equities, showing investors likely missed out on the S&P 500’s 34% rally since the start of 2023.
Action Line: Your Survival Guy likes 5% on money market rates. I’m here when you want to talk about managing the cash in your investment portfolio. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
