Many
investors
have
chosen
to
remain
in
cash
over
recent
months,
with
some
money
market
funds
paying
over
5%.
Yields
have
risen
sharply
since
2022
as
the
U.S.
Federal
Reserve
started
to
raise
interest
rates
aggressively
to
combat
inflation.
In
May,
the
yield
on
the
30-day
U.S.
Treasury
bill
climbed
above
5%,
and
it’s
remained
there
since,
Wells
Fargo
Investment
Institute
said
in
an
Aug.
28
note.
“As
cash
yields
remain
elevated
and
inflation
has
cooled
significantly
from
last
year’s
levels,
cash
yields
moved
into
positive
territory
on
a
real,
inflation-adjusted
basis
after
a
few
years
of
negative
real
yields,”
said
Veronica
Willis,
global
investment
strategist
at
the
firm.
“This
shift
to
a
positive
real
cash
yield
environment
has
prompted
investors
to
question
if
now
is
the
time
to
increase
cash
holdings
or
hold
on
to
cash
to
wait
for
a
better
opportunity
to
enter
the
market,”
it
added.
The
pros
weigh
in
on
whether
it’s
a
good
idea
to
stay
in
cash
for
the
remainder
of
the
year.
Cash
to
‘outperform’
stocks
In
a
Sept.
7
note,
Barclays
said
it
believes
cash
will,
in
the
fourth
quarter,
outperform
stocks
for
a
second
straight
quarter.
It
said
this
thesis
“largely
holds
true:”
In
an
environment
where
investors
can
“comfortably
sit
in
cash”
with
5.4%
yields,
it’s
“unreasonable”
to
expect
significant
outperformance
from
stocks
or
bonds.
While
Barclays
expects
some
weakness
in
U.S.
gross
domestic
product
growth
in
the
first
half
of
2024,
it
thinks
there
will
still
be
a
higher-for-longer
rate
regime.
That
means
there
isn’t
yet
a
“strong
case”
for
owning
duration
—
meaning
long-dated
bonds
or
stocks
—
but
also
that
interest
rates
in
the
U.S.
are
likely
to
diverge
from
that
of
other
markets.
“Meanwhile,
a
stagnant
European
economy
and
a
weaker-for-longer
Chinese
economy
make
pockets
of
cyclicals
in
FX,
equities
and
commodities
look
unattractive.
So,
for
a
second
straight
quarter,
we
prefer
the
company
of
cash
over
stocks
and
bonds,”
Barclays
wrote,
describing
major
asset
classes
as
“still
unattractive.”
Goldman’s
chief
U.S.
equity
strategist
David
Kostin
told
CNBC’s
”
Squawk
on
the
Street
”
this
week
that
almost
$1
trillion
has
moved
into
money
market
funds
this
year,
and
given
the
income
investors
get
from
cash,
it’s
a
“pretty
attractive
alternative
to
equities.”
“The
relative
attractiveness
of
cash
is
actually
pretty
strong
in
this
environment.
And
that
is
where
a
lot
of
the
money
is
gone
on
the
margin,”
he
said.
“And
the
likelihood
is
you
have
money
that
goes
from
equities
more
into
cash.”
JPMorgan
said
in
a
Sept.
11
note
that
it’s
trimming
1%
of
its
position
in
government
bonds
—
and
allocating
that
to
cash.
That’s
“given
the
potential
for
the
commodity
price
surge
to
feed
inflation
and
extend
central
banks’
hiking
cycles,”
it
said.
Billionaire
investor
Ray
Dalio,
founder
of
Bridgewater
Associates,
sounded
a
similar
tune.
He
said
on
Thursday
at
the
Milken
Institute
Asia
Summit
in
Singapore
that
he’s
steering
clear
of
bonds
and
prefers
cash
right
now.
Perils
of
holding
cash
in
the
long
term
While
investors
might
be
tempted
to
increase
their
cash
holdings
to
benefit
from
elevated
yields,
that
can
have
“unintended
consequences,”
said
Willis
of
Wells
Fargo
Investment
Institute.
“Even
if
cash
yields
remain
elevated
in
the
short
term,
cash
will
likely
underperform
other
growth
assets
over
the
long
term,
putting
a
drag
on
long-term
performance,”
she
said,
adding
that
history
has
shown
even
a
“very
conservative”
portfolio
allocation
has
had
higher
returns
than
cash
over
long
periods
of
time.
“While
we
do
not
expect
a
return
to
the
ultra-low
cash
yield
environment
of
the
past
decade
or
so,
we
do
expect
every
strategic
asset
class
to
outperform
cash
over
the
long
term
based
on
our
capital
market
assumptions,”
she
added.
U.K.
asset
management
firm
Schroders
said
in
a
Sept.
14
note
that
while
holding
cash
“for
flexibility”
is
prudent,
it
believes
it’s
time
to
start
thinking
long
term.
In
light
of
expectations
that
there
could
be
a
downturn
later
this
year
or
in
early
2024,
the
firm
said
adding
longer-dated
bonds
instead
—
therefore
locking
in
high
yields
—
could
“prove
valuable.”
“We
think
investors
may
not
fully
appreciate
the
risks
of
continuing
to
overweight
short-term
investments
or
cash
nor
the
yield
cushion
bonds
currently
offer
against
further
price
declines,”
the
asset
manager
said.
It
said
the
market
consensus
is
that
interest
rates
will
be
on
a
lower
trajectory
over
the
next
12
to
24
months.
“If
short-term
interest
rates
fall,
short-term
investments
or
cash
investors
will
need
to
reinvest
at
a
lower
rate,
reducing
future
returns.
When
investors
buy
longer
maturity
bonds,
they
are
exposed
to
less
reinvestment
risk,”
Schroders
said.
—
CNBC’s
Amala
Balakrishner
and
Michael
Bloom
contributed
to
this
report.
