WSJ's Zweig Says Take the Zero
Columnist Jason Zweig writes in Wall Street Journal, "Your Cash Earns Zip, Zilch, Nada. Don't Make It Worse." He explains, "A good yield is hard to find. With interest rates so close to zero across the board, many investors are undoubtedly wondering whether they can afford to keep a portion of their portfolio safe. In fact, you can't afford not to.... U.S. investors have amassed $4.79 trillion in money-market funds, says Crane Data, a firm in Westboro, Mass., that tracks cash accounts. Yet the average money fund yields a piddling 0.03% in interest income. In the third quarter, reckons Crane, investors pulled $238 billion out of these funds. Yield is so hard to come by that several asset managers have begun shutting down tax-free money funds." The piece explains, "Investing for income in this environment is like trying to squeeze water out of a fistful of sand at high noon in Death Valley. The standard advice from pundits and financial planners is to squeeze more desperately: If you take a lot more risk, you can wring out a little more income.... This year has subjected these assets to wholesale slaughter. In the first nine months of 2020, utilities lost 6%, real estate 7%, financials 20% and MLPs 49%, as measured by leading exchange-traded funds that invest in those sectors.... Meanwhile, in the bond market, the siren song of low risk may never have been louder, says Nancy Davis, founder of Quadratic Capital Management LLC." Zweig adds, "One of Wall Street's favorite adages is 'Don't fight the Fed.' ... If you want to keep some of your money safe, however, you need to defy that maxim. You should fight the Fed. I like to say that at least 90% of what makes investors successful isn't knowing what to do, but knowing what not to do.... So it's never been more tempting to take extra risk with the money you want to keep ultrasafe. But knowing what not to do is vital. Fooling yourself into thinking that you can find absolute safety in any asset yielding more than 1% is a terrible idea. We live in a 1%, if not a sub-1%, world right now. Nothing you do can change that.... When your future self looks back at the decisions you face now, which will you regret more: Earning less income than you could have but keeping your cash safe, or earning higher income that came at the cost of destroying your capital?" See also, the WSJ's "Stashing Cash In a Low-Interest World."
