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Last week, money markets outperformed stocks and bonds for the first time in 25 years…
CNBC reports investors pulled $7.4 billion out of the ETF that tracks the S&P 500 (NYSE: SPY)… and pulled $3.3 billion from other stock ETFs and mutual funds.
They moved $400 million into bond funds.
But they put over $17 billion into “cash equivalent” money market funds. The last time money markets beat both stocks and bonds was 1990.
The moves illustrate just how wary the markets are right now…
The Federal Deposit Insurance Corp. (FDIC) reports the average yield of a U.S. money market account (under $100,000) is only 0.83%. The “risk-free” U.S. 10-year Treasury note offers a 2.17% yield… almost three times as high.
But money markets won out because when investors are scared, they flock to cash…
Regular Daily readers know we’re huge fans of cold, hard cash. Tom even buries cash for a rainy day.
Here’s what we wrote about cash in PBRG’s 2015 Asset Allocation Guide:
There’s nothing quite like cash. Simply put, cash gives you options. You never know what opportunities life might throw at you. The stock market could fall 50% and give you a once-in-a-lifetime opportunity to buy dirt-cheap stocks. Or you could stumble upon the perfect investment property. Maybe you discover a lucrative business opportunity. Or you might get hit with a huge, unexpected medical bill. Whatever it is, cash typically “meets the need” better than anything else. It’s critical to hold some cash. |
Now, this doesn’t mean you should dash after the herd, sell everything, and sit 100% in cash… But you should always have plenty of cash ready to use when others start panicking.
Bottom Line: If you’ve followed our asset allocation recommendations, you already have a substantial cash position. Use it to snatch up incredible companies on the cheap, as the markets look to retest their August lows over the coming weeks.
All paid PBRG subscribers can click here to review our recommended cash allocation percentages.