As financial markets continue to experience turbulence, many Americans are turning to cash as a safer bet. The latest figures from the Investment Company Institute reveal that assets in money market funds have soared to an unprecedented $7.03 trillion as of last Wednesday. This shift comes amidst growing uncertainty fueled by President Donald Trump’s tariff policies and their implications for the economy.
“Investors have been reacting to the recent spikes in market volatility,” explains Shelly Antoniewicz, the chief economist at ICI. “Given that short-term interest rates remain historically high, money market funds — which funnel earned interest back to shareholders — have become a more appealing option for both institutional and retail investors.”
In the past week alone, retail investors have poured an additional $30.35 billion into these funds, raising their total assets to $2.84 trillion. Meanwhile, institutional money market funds experienced a climb of $20.8 billion, reaching a total of $4.19 trillion. Although the yields on money market funds have dipped from previous peaks of over 5%, they are still quite attractive. Currently, the Crane 100 list — a collection of the largest 100 taxable money funds — shows an annualized seven-day yield of 4.16%. Peter Crane, who founded the money market tracking firm Crane Data, attributes this influx to a move away from low-yield bank deposits.
Amid these trends, investors are advised to carefully consider how they allocate their cash, notes a recent UBS report. Strategist Vince Heaney cautions that rates on cash-equivalent assets could plummet if unexpected economic data weaknesses arise. “In light of declining interest rates in Europe and potential growth risks in the U.S., we suggest that investors with excess cash should aim for more diverse and sustainable sources of income,” he advises. Heaney also highlights that, historically, cash has underperformed other asset classes on a long-term basis. For example, stocks have outshined cash in 86% of all 10-year periods and 100% of 20-year periods since 1926. Bonds, too, tend to perform better than cash, outperforming 65% of the time over a year, rising to 82% over five years, 85% over a decade, and 90% over 20 years.
Despite the appeal of holding cash for its liquidity — useful for emergencies and anticipated large purchases — it comes with fluctuating rates. High-yield savings accounts and money market funds offer this liquidity but are influenced by market shifts. Certificates of deposit (CDs) provide the opportunity to lock in rates, though they entail penalties for early withdrawal. Building a CD ladder with varying maturities can be a strategic way to manage liquidity needs.
For those seeking to boost portfolio income, Vince Heaney from UBS offers some strategies. He suggests that high-grade and investment-grade bonds present a balanced risk-reward scenario, predicting mid to high-single-digit returns for medium-duration bonds in dollar terms over the coming year. Further diversification, by venturing into higher-yielding fixed income, private credit, senior loans, and equity income, could also bring rewarding outcomes while managing risks. For individuals planning financial outlays a year or more down the line, he proposes considering short-dated fixed income options, which might provide better risk-adjusted returns than cash.
