Few are saying that cash is trash these days.
As stocks tumble, bonds slump and cryptocurrencies melt down, investors who funneled money into the booming bull market the past two years are thinking twice. The destination for many? Good old-fashioned cash.
In fact, a recent Bank of America Corp. fund manager survey showed that cash levels among investors are at their highest since September 2001. Yet the move to cash carries its own risks: with the most recent inflation reading showing an 8.3% increase in consumer prices on an annual basis, the real value of cash is declining.
“A lot of people have been tempted to go to cash because of all the turbulence in the market,” said Amy Arnott, a portfolio strategist at Morningstar. “The new challenge is inflation higher than it has been.”
No one has been more vocal than Ray Dalio, billionaire founder of hedge fund Bridgewater Associates, in proclaiming “cash is trash” over the past two years.
So what’s a savvy investor to do? Experts caution that trying to time the market is never a good idea, and that, historically, the price of equities rises over time. But for those who have decided to take some risk off the table, there’s a range of options for storing that money.
High-Yield Savings Accounts
If there’s a chance you might need the money relatively soon, a high-yield savings account is a great way to earn a bit of interest while still keeping funds liquid.
Although yields are still low on these offerings, they’re starting to tick higher as the Federal Reserve raises benchmark rates. For instance, Goldman Sachs Group Inc.’s popular consumer bank Marcus recently increased its annual percentage yield to 0.7%, up from the 0.5% it offered during much of the pandemic. That’s still well below the 2% yield offered in 2019, but higher than what you can get from a more traditional bank, like Bank of America or JPMorgan Chase & Co.
Barclays and Ally Bank also feature high-yield savings options with rates similar to that of Marcus.
“Each day it seems like different banks are fighting for the best high-yield savings rate, so shop around,” said Jay Zigmont, a certified financial planner in Mississippi.
Money Market Funds
Another option for keeping cash liquid is money market funds, which are structured like mutual funds and invest in cash or short-term debt securities that carry little risk.
Money market funds are especially useful for short-term storage of money you plan to use for a big purchase, like a down payment on a house, or for placing a small percentage of your portfolio in cash, explained Corbin Blackwell, senior financial planner for roboadviser Betterment.
Rob Williams, managing director of financial planning and wealth management at the Schwab Center for Financial Research, likes this option for cash because the interest rates on money market funds adjust quickly as benchmark rates rise.