Your Cash Is Earning 5% Interest. Is Now the Time to Move It?

By using this tool, you can calculate your monthly installments based on the loan amount, interest rate, and tenure.
By using this tool, you can calculate your monthly installments based on the loan amount, interest rate, and tenure.


Investors are considering taking on more risk ahead of possible interest-rate cuts.

Playing it safe paid off for investors in 2023 better than it has in years. Now, it could be time to take more risk with your money.

Americans piled into the safe, guaranteed return provided by cash and cash-like investments in the past year. Money-market funds and high-yield savings accounts each had inflows with households adding more than $651 billion to money-market funds in the second quarter compared with last year, according to Federal Reserve data.

Driving the decision to take money out of stocks and bonds and into cash was the Fed. A campaign of interest-rate increases from the Fed pushed the returns of money-markets and similar securities higher. In many cases, investors figured grabbing an easy and guaranteed 5% annual return on their money was a no-brainer.

While there is no guarantee the Federal Reserve is done raising rates or will cut them soon, the board is pausing for now. And history suggests it pays to make moves now, before a possible first rate cut.

Stocks and bonds both tend to perform better in a pause before rate cuts than after, according to an analysis from BlackRock. Since 1990, stocks purchased in the six months after the first rate cut in a cycle have returned an annualized average of 15%, compared with a 21% return for investments made during the pause. Bonds returned an average 15% in the pause before the cuts and 7% afterward.

“This period in between the last Fed hike and the first Fed cut tends to be a really rewarding time," said Kristy Akullian, senior iShares investment strategist at BlackRock.

Too much

Poor performance in both the stock and bond markets led some financial advisers and analysts to warn earlier this year that the standard portfolio of 60% stocks and 40% bonds might no longer be effective.

More recently, stocks and bonds both rallied in November.

And while that return might not last, financial advisers said most people can benefit from the same advice: You are probably holding too much cash.

Eric Leve, chief investment officer at investment firm Bailard, is advising clients to move more of their money into stocks and longer-term bonds before the new year. A longer-term bond is any bond that matures 10 years or more from the current date. So, if you buy that bond today, you are guaranteed the same annual yield for years to come.

To make these investments, Leve suggests selling short-term securities, including money-market funds, high-yield savings accounts and even short-dated Treasurys.

The problem with these securities is that at some point in the near future, they will expire and pay investors back. This means investors will then have to reinvest their money when the return on these products has declined.

“Those short-term yields that people are getting are going to go away," he said.

There are signs some investors have already started making this move.

Total money-market fund balances recently dropped by about $3 billion since peaking in early November, according to data from the Investment Company Institute. BlackRock said more individual investors are moving from short-term bond exchange-traded funds to longer-duration funds.

Cash still has an important role in investment portfolios, advisers said. For example, it is important to keep a few months’ worth of expenses before increasing your investments. That said, if your emergency fund is shored up, you can probably afford to put more money into stocks and bonds, Leve said.

Many investors are still keeping too much of their assets in cash, advisers said. Households kept 17% of their financial assets in cash or cash-like investments such as money-market funds or certificates of deposits in 2022—the highest share since 2012, federal data show.

Regular investors have a poor history of trying to time the market and often pull money out just in time to miss sustained growth. The case for holding stocks long term is that over the past centuries it has provided the best opportunity for investors to build wealth.

“It’s too risky to be out in the long term," Leve said.

Write to Imani Moise at

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.


Switch to the Mint app for fast and personalized news - Get App