Cash Holdings Rise To Record Levels

Cash Holdings Rise To Record Levels

almost 4 years ago2 mins

For investors caught in market maelstroms, cash is king. And with the amount held in US retail “money market” funds rising 10% in the past 10 weeks to reach an all-time high, it may be worth revisiting your portfolio allocation… 💰

What does this mean?

New data from the Investment Company Institute shows that the size of US money market funds – which invest in cash and super-short-term government bonds – swelled to a record $4.8 trillion earlier this month, higher than during the darkest days of the last recession.

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A scramble to buy into the safest and most readily available cash equivalents in March – from both investors selling riskier investments and companies looking to cache their capital – prompted the US Federal Reserve to intervene. But despite stock markets recovering somewhat since then, extreme economic uncertainty remains – and so too does a voracious appetite for money market funds.

At a time when many government bonds offer negative yields, the low-risk funds promise at least some return to investors big and small. The amount of cash in “retail” funds open to the general public increased by 10% over the last 10 weeks – while large-scale “institutional” investment jumped 42% 😯

Why should I care?

There are several reasons why an investor might want to keep a proportion of their portfolio in cash, or in easily accessible money market equivalents. Having anywhere between 5% and 30% on hand (not including emergency savings, naturally) can allow you to ride out particularly tough times – and perhaps pick up attractive investments on the cheap.

As readers of our Currency Trading Pack will be aware, however, the denomination of that cash can be a big factor. Storing up dollars is all well and good – but the UK pound has fallen more than 2% against the US currency in recent days on renewed Brexit fears.

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Speaking (as ever) of economic growth, some worry that the record popularity of money market funds could slow the flow of cash back into growth-boosting investments, let alone spending. But while the present uncertainty continues, can cash hoarders be blamed? 😐

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