4747 West 135th Street, Leawood, KS 66224 | (913) 239-2300 | info@faswealthpartners.com
4747 West 135th Street, Leawood, KS 66224
(913) 239-2300
info@faswealthpartners.com
Investment Advisory Services offered through FAS Wealth Partners, a Registered Investment Adviser with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. FAS Wealth Partners’ website and its associated links offer news, commentary, and generalized research, not personalized investment advice. Nothing on this website should be interpreted to state or imply that past performance is an indication of future performance. All investments involve risk and unless otherwise stated, are not guaranteed. Securities may be offered through FAS Corp, an SEC registered broker-dealer and member of FINRA. FAS Corp is an affiliate of FAS Wealth Partners.
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FAS Market Update February 2023
Cash Is No Longer Trash
Ray Dalio, the billionaire founder of hedge fund behemoth Bridgewater Associates, during a 2020 interview famously quipped, “cash is trash” and for good reason judging by the chart below. In this month’s update we will be reviewing yields on the 3-month treasury bill, past and present, along with implications it has for investors.
During the global financial crisis of 2008 central banks slashed interest rates to promote economic activity and risk taking. This zero-interest rate policy (ZIRP) remained in effect through 2016 as inflation remained subdued and policy makers were more concerned about below-trend levels of economic growth. For a brief period, rates began to “normalize” before ZIRP was swiftly reintroduced in response to the COVID-19 pandemic crisis.
As of February 14, 2023, the benchmark yield is back up to 4.76% which is a level not seen since August of 2007. Market expectations are for short-term rates to climb even higher as the Federal Reserve continues to combat inflation with another two, or perhaps three interest rate increases over the near-term horizon.
This benchmark interest rate has important implications across a wide variety of asset classes but particularly on money market funds. During the period of ZIRP these investment options offered close to or at 0% rates of interest. In fact, the fund managers often offered fee waivers because the interest on the securities they were buying were so low.
As the short-term benchmark interest rates have rapidly increased, so have the income investors can earn from owning money market funds. FAS Wealth Partners utilizes a number of these investment products. For example, the 7-day current yields for commonly held money market funds at both Schwab and Fidelity are well above 4%. Conversely, most on demand checking and savings accounts at traditional banks are still yielding less than 1% (see chart below).
Source: Federal Reserve, FDIC, and Goldman Sachs Asset Management
Higher investable money market rates might be an opportunity to increase yield for those investors sitting on large cash balances at traditional banks.
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