As trades go, it looked like a layup. In March, banks were in turmoil, Jerome Powell was jacking up rates, and a recession was all but certain. So: take cash out of stocks and put it in bonds, where short-term rates were 5%.

Three months later, that simple-seeming decision has been anything but easy money for investors who piled in. The S&P 500 is up roughly 14% from its low in March, the Nasdaq 100 is poised for its best first half ever — and cash-like fixed-income funds are flat.

While market-timing sob stories are common, this one is notable for the breadth of the casualty list. Spooked by the economy and lured by fat fixed payouts, investors dove into money market mutual funds, boosting assets to a record of nearly $5.5 trillion in June, data from the Investment Company Institute show.

Fresh off a year in which they absorbed $42 billion in flows, exchange-traded funds tracking short-dated Treasuries have taken in another $5.6 billion in 2023, led by products such as the $11 billion iShares 0-3 Month Treasury Bond ETF (ticker SGOV).

Painful as it’s all been for bond owners, stock traders weren’t exactly poised to feast, either. Equity exposure among pro managers spent most of the year cut to the bone, and as recently as March, US ETFs tied to equities had absorbed $24 billion less in terms of inflows than their debt-tracking brethren. That’s evidence of significant investor alienation given how much bigger the universe of stock funds is than bonds.

The excitement around AI has pushed stocks higher, but that trend won’t last forever and there’s still time for things to reverse, says Penn Mutual Asset Management’s Zhiwei Ren, whose team is underweight risk. As of now though, “the huge stock rally makes 5% look like nothing.”

A lot of wary investors are sitting on piles of cash, thinking it’s “better to stand safely on shore — and earn what looks like a decent yield in today’s higher interest rate environment — than risk swimming in choppy and uncharted waters,” wrote Saira Malik, chief investment officer at Nuveen. “But when does an abundance of caution turn into missed opportunity?”

Her team recommends investors “dip a toe” into emerging-markets equities, among other things.

If someone needs money, it makes sense to be in cash or cash-like assets, says Alex Fitch, director of US research and a portfolio manager at Harris Associates. But, for investors with longer horizons holding cash is “a very dangerous thing to do,” he said, and “market timing — that’s a tough skillset.”

--With assistance from Isabelle Lee.

This article was provided by Bloomberg News.