almost 4 years ago • 2 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… 💰
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.
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% 😯
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.
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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