More Investors Moving Into Cash

The Federal Reserve's 16 consecutive hikes in interest rates are giving institutional and retail investors newly found respect for cash and money market funds, The Wall Street Journal reports.

In fact, with many market funds returning as much as 5%, the stock market continuing on its roller coaster downward ride and inflation fears spreading, Wall Street strategists are recommending investors put a greater share of their money in cash rather than bonds. Merrill Lynch Strategist Richard Bernstein recently raised his cash recommendation from 10% of an investor's portfolio to 20%. And Fidelity Investments Senior Vice President John Sweeney said investors should consider cash not just as a place to safeguard their money but to seek real earnings.

That appears to be good advice, for in the 12 months ended in April, the U.S. 30-day Treasury bill returned 3.66%, compared with the Lehman Brothers Aggregate Bond Index's 0.71% return, Ibbotson Associates data shows.

True enough, investors are moving into cash at a pace they have not done so in recent years. Certificates of deposit now hold more than $1 trillion, and savings accounts (including money market funds) hold $3.6 trillion. In the past 12 months, investors have put $171.2 billion into taxable money market funds, whereas they withdrew $117.4 billion in the previous 12 months, according to iMoneyNet.com.

And many believe that Federal Reserve Chairman Ben Bernanke will make good on his hints that he will raise short-term rates even further, which would push the returns on money market funds above 5%.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.