In this video, we take a closer look at the costs of holding cash. We’ll consider why it may no longer be the right choice for investors as interest rates start to decrease and other assets are likely to offer better returns.
Key Takeaways
- Market uncertainty and high short-term interest rates have contributed to record assets in money market funds and other cash equivalents.
- Money market fund assets have reached a record high of $6 trillion.
- Cash has had an average annual return of 0.8% since the quantitative easing measures following the GFC. In 2023, cash produced an annual return of over 5%, a 2-decade high.
- Interest rates have likely peaked, and interest earned on short-term investments like cash are likely to fall as the year progresses.
- Holding too much cash poses an opportunity cost to investors.
- Investors with cash may be better served to invest in diversified, long-term focused portfolios that include stocks and bonds.
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