Cash still king for US retail investors even with expected Fed rate cuts

A golden era for cash may be winding down as the US Federal Reserve gets ready to cut interest rates.

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But many fans of the investment class are staying put anyway.

Assets in US money markets hit a record US$6.24 trillion (S$8.15 trillion) in August, data from the Investment Company Institute shows, even as markets became increasingly confident that the Fed was gearing up to lower rates at its Sept 17 to 18 meeting. Those reductions are expected to eventually pull yields in money markets down from above 5 per cent, a rate unimaginable a few years ago.

So far, however, there is little evidence that individual investors are abandoning cash to chase returns in stocks and bonds.

Some US$100 billion flowed into money markets in August, according to data analysis firm EPFR.

"We don't feel any need to move our money," said Mr Vance Arnold, a 71-year-old retired teacher and baseball coach who has about 80 per cent of his sevenfigure portfolio in money markets and other cash equivalents.

"Money-market yields went from near-zero to 4.5, 4.7 per cent, and now we're over 5.2 per cent. I can live with 4.5 per cent again," he said.

The durability of money markets is a recent example of how cash has re-emerged as an asset class that can compete with stocks and bonds, one of the most striking shifts in the post-Covid-19 investment landscape. Assets in money markets have grown by US$313 billion this year, according to Crane Data, which tracks money market funds, despite heady returns in stocks and expectations that the Fed will cut rates.