That means yields will drop on short-term instruments,” says Haworth. “There are signs that over the course of 2024, the Fed is likely to begin lowering interest rates. Haworth says another sensible step may be to consider longer-term fixed income securities. Both vehicles offer more competitive yields than was the case prior to 2022. Other options to consider are FDIC-insured bank savings accounts, which typically provide immediate liquidity, and certificates of deposit, available for various holding periods. He says investment grade corporate debt provides competitive rates, with municipal bonds also offering even more attractive tax-equivalent yields for individuals in higher tax brackets. Yields on most fixed income securities rose significantly since early 2022. “A first step is to move cash into short-term, lower-quality fixed income instruments that pay more attractive yields given the recent change in the interest rate environment,” says Haworth. “Historically speaking, a diversified portfolio emphasizing stocks and bonds will outperform cash,” says Haworth. Resources not needed for near term purposes can be invested with the objective of generating more attractive, longer-term returns. The Fed moved its benchmark interest rate from near zero percent in early 2022 to a range of 5.25% to 5.50% by July 2023. The underlying economic environment that affected stock and bond investors in 2022 included a significant jump in inflation and the Federal Reserve’s response, dramatically raising short-term interest rates. What factors and opportunities should investors consider as they seek ways to manage cash and investments in today’s higher interest rate environment? In today’s market, there is a lot of value to be found beyond cash-equivalent instruments.” “The key to investing is holding a diversified portfolio. Yet Haworth points out that investors with long-term goals also need to think about the best ways to position assets in vehicles like stocks. Haworth notes that some people are attracted to the relative safety of cash instruments that may pay annual yields of 5% or more. This occurred in the wake of significant declines suffered by stocks and bonds in 2022. “A lot of investors, in essence, got ‘out of the pool’ with some of their investable assets in 2022,” says Rob Haworth, senior investment strategy director at U.S. Money market assets have been above $5 trillion for most of 2023, exceeding a previous peak, which occurred in March 2020, during the early days of the COVID-19 pandemic. By early November 2023, investors held a record level of assets – nearly $5.7 trillion – in money market funds. Business savings and money market accountsĪ shift of financial assets into the relative “safe haven” of money market funds began in 2022 and continues today.Find a financial advisor or wealth specialist.
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