Ameriprise on Continuing to Hold Cash
Ameriprise Financial posted an article, "The Fed is holding rates: Should you continue to hold cash?" They write, "There is always a need for some cash in your accounts. For short-term needs, you need a cash float in your checking account to cover bills paid between paychecks, and for unexpected events, you likely need cash investments to serve as an emergency fund. In an investment account, cash can build up from new contributions, dividends, and interest payments. During periods of volatility, cash can accumulate if you hesitate to invest or even take a step back by selling a portion of your portfolio. However, rising cash balances can be a drag on investment portfolios, lowering the potential risk and return, and could leave an investor short of their goal." The piece continues, "Back when cash was king. Cash and cash investments earned roughly 5% in 2023 and 2024. The Fed's rate cuts, which began last September, have already shaved a full percentage point from the typical cash investment yields. Three-month T-bill yields, a proxy for cash investment returns, settled to 4.32% on May 6, down from a peak of 5.51% on October 6 of 2023. More Fed cuts ahead could pull the rug out from under cash." Ameriprise adds, "Whether it is delaying putting a new chunk of dollars to work in an investment account or pulling back from the market at times of volatility, those who delay could miss out. The cost of waiting may include missing out on cash investment yields if rates drop. Waiting could delay investments in fixed income with potentially higher yields now compared to the future, or in stocks at potentially lower prices. Design a strategy where you can remain invested long-term in a diversified portfolio. Investors who dial in the proper mix of stocks and bonds could be more successful than those who sell investment assets to lower risk after a market sell-off occurs.... We believe there's an opportunity to put excess cash to work in fixed income today to lock in investment returns beyond the near term and capture relatively elevated yields still available. Now may also be a great time to put monies taken out of the market due to recent volatility back to work in high-quality fixed income that can offer moderate returns with less risk than stock investments."
