"Cash Comes at a Cost" Says Reuters
Reuters says that "Investors' cash buildup comes at a cost." They write, "Investors sitting on a mountain of cash built up since late last year may be paying a price for playing it too safe in the first weeks of 2019. Individuals and institutions have poured tens of billions of dollars into money market funds amid the aftershock of last year's punishing losses from stocks and next-to-nothing from bonds. Ongoing turmoil from trade tensions between China and the United States, political infighting in Washington and interest rate increases from the Federal Reserve have also inspired the rush into cash. Despite those concerns, Wall Street has staged a comeback to kick off the new year ... while junk bonds produced their strongest monthly return in more than seven years. At same time, the yields on money funds stuffed with all that safe-haven cash have trickled lower. Analysts and fund managers said the stampede into cash is understandable, but safety comes with a steep opportunity cost." The article quotes PIMCO's Jerome Schneider, "Investors can penalize themselves. While money market funds offer safety, they come at a cost as they accept a lower yield." It adds, "Interest rates on cash investments, currently at around 2 percent, are hardly dazzling. But in the last year they have risen above the rate of inflation for the first time since the financial crisis, and are up from near zero over three years ago before the Fed began raising rates."
