The Investment Company Institute released data showing assists in the US money market hit $6.24 trillion this month, despite the Federal Reserve’s promise to cut interest rates in September. Currently bringing in yields of over 5%, the rate cut is bad news for cash investors. September 6^th will see the next set of US Employment Data released, another factor that could determine the extent of the rate cut. The July data caused shockwaves across the markets. But with over $100 billion being put into money markets in August, it looks as if for now, investors are standing firm.

Money markets have demonstrated greater resilience in the post-Covid era. Assets have grown over $313 billion in this year, despite strong returns in stocks and the expectation of the Feds’ cuts. Cash is now considered one of the safest and most liquid asset classes, a huge shift from a few years ago when the rate of return was close to zero. Currently enjoying an unprecedented rate of 5.2%, some investors feel that a cut down to 4.7% or 4.5% (in line with the expectations of the FED cut to come in September) is a comfortable drop. Combined with volatility in the stock market and uncertainty around the US election, investors seem more comfortable playing it safe.

However, higher yields are being delivered by other classes. On average, cash has returned 2% over the past 12 months, compared to 11% from stocks and 5% from treasury bonds. Experts are advising investors to diversify into other classes to make the most out of their money.  

(Sources: reuters.com)