You missed it

Don’t let high yields on your cash fool you.

I remember the last time you could earn more than 5% interest on your cash. Prior to the Great Recession, instruments such as CDs, money market funds, and Treasury bills actually yielded returns above zero. That was more than 14 years ago–a significant span of time for investors to forget the sensation of earning meaningful returns on their deposits. Many of my clients had not even completed high school at that time. This ages me but also highlights the fact that a significant number of adults have no personal experience living through a time when interest rates earn you anything. 

Earning interest feels good, especially when it’s low-risk. Personally, I love seeing my cash grow. And while I know inflation is an invisible tax on that growth, it doesn’t replace the fact that most people are just happy to be getting more than nothing. At the end of May, money market assets alone hit a fresh all-time high of $5.8 trillion. While lounging on the beach over the Fourth of July weekend, a colleague of mine joked that he, while happy to do it, was getting tired of buying Treasury bills for his clients. Even legendary investor and Bridgewater Associates founder, Ray Dalio, says cash is no longer trash.

Cash reserves are important–you’ve heard me beat that drum before. The sense of comfort that comes from having a reserve is undeniable, and the prospect of earning interest on your money makes it even more enticing to become a super saver. But there’s a balance to strike between seeking protection and seizing opportunity. Accumulating cash beyond your appropriate reserve amount might cause you to miss out on those opportunities. And if you find yourself waiting, waiting, and waiting to see what “the market” will do, you are trying to time the market. And that, friends, isn’t how this works. 

I do get it, though. The allure of higher yields is captivating investors, creating a newfound appreciation for cash as an asset class. Following the tumultuous market conditions of the past year, it's not difficult to comprehend why many investors are seeking risk-off strategies this year. The onslaught of volatility since 2020 finds us yearning for stability. As a financial advisor catering to elder millennials, I live and see how we've been drained both emotionally and physically from the challenges of the COVID era. Now, as we’re striving to restore balance in our lives, it's unsurprising that we are naturally taking a more cautious approach regardless of our individual financial circumstances. 

Just look to the first half of this year as the perfect example of how failing to invest excess cash might lead to missed opportunities. The S&P 500 climbed over 14%, and the tech-heavy NASDAQ set a new record by surging an astonishing 38.8%. Meanwhile, the 1-year T-bill you purchased in January at a rate of 4.72% earned just 2.36%. That’s a massive spread in returns. From a market standpoint, you missed it. 

What you don’t want is your excitement around cash yields to prevent you from putting your money to work. I’ll admit that I personally have leaned on cash a little too hard, attempting to thread the needle between short-term uncertainties and long-term opportunities. I did okay, but I could have done better. I too am not immune to overthinking things–I am human, after all. But revisiting an investor’s financial goals through planning-driven conversations will bring clarity to how and when to get in. 

Investing is hard, because nothing stays the same forever. Our lives, the economy, and the markets are constantly in flux. Standing alone, each has the potential to trick us into deviating from our long-term strategies based on how we feel. Despite my best efforts with my clients, I always see systematic investment plans put on ice because of a slight change in the winds. 

Today, it’s interest rates. Tomorrow, it will be something else. 

By maintaining a balanced approach and resisting the urge to time the market, investors can navigate the ever-changing landscape with greater confidence, ensuring that they don't miss out on whatever it is they’re looking for.

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