Rising Opportunity Cost of Cash Investments
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 2 days ago
0mins
Source: CNBC
- Cash Investment Risks: Despite solid yields from money markets and certificates of deposit, excessive concentration in cash assets may lead to rising opportunity costs, particularly as uncertainty about future interest rates increases following the Fed's three rate cuts last year.
- Market Fund Flows: As of April 29, money market fund assets reached $7.63 trillion, indicating a strong preference for cash equivalents, while historical data shows that the average annual return on cash post-rate cuts is about 2.8%, significantly lower than the 7% to 9% returns from bonds.
- Bond Investment Recommendations: Wells Fargo advises investors to shift excess cash into intermediate-term bonds, asserting that if the Fed cuts rates one or two more times in the next one to three years, these bonds will outperform cash, with a focus on high-quality bonds like mortgage-backed securities and investment-grade corporate bonds.
- Floating Rate Asset Opportunities: For those reluctant to extend duration, considering floating-rate assets such as collateralized loan obligations (CLOs) is a viable option, with BlackRock emphasizing that despite current market volatility and geopolitical risks, fixed income investments present a compelling opportunity.
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Analyst Views on BLK
Wall Street analysts forecast BLK stock price to rise
10 Analyst Rating
8 Buy
2 Hold
0 Sell
Strong Buy
Current: 1067.740
Low
1209
Averages
1354
High
1550
Current: 1067.740
Low
1209
Averages
1354
High
1550
About BLK
BlackRock, Inc. is an investment management company. The Company provides a range of investment management and technology and subscription services to institutional and retail clients. Its diverse platforms of alpha-seeking active, private markets, index and cash management investment strategies across asset classes enable it to tailor investment outcomes and asset allocation solutions for clients. Its product offerings include single- and multi-asset portfolios investing in equities, fixed income, alternatives, and money market instruments. Its products are offered directly and through intermediaries in a range of vehicles, including open-end and closed-end mutual funds, iShares exchange-traded funds, separate accounts, collective investment funds and other pooled investment vehicles. It also offers technology services, including the investment and risk management technology platform, Aladdin, Aladdin Wealth, eFront, and Cachematrix, as well as advisory services and solutions.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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