AAII Portland Chapter

I have included an article (WSJ article 6-26-2024: Cash trap poses dangers to some Americans) that deals with one of the topics that we discussed at our most recent AAII Income and Cash Flow Investing meeting on Thursday June 20^th.

High yield money market funds with 4% to 5% yields are attractive to ultra-low yields that money market assets generated just a couple years ago. However, what the Fed primarily did since early 2022 was to normalize interest rates back to their long-term historical range from the artificially low interest rates that were in place during the previous decade.  Although the Fed recently signaled that they have correctly adjusted their timetable and the probable extent of their interest rate adjustments (due to a continued relatively strong economy and robust inflation), the next move in interest rate direction likely remains downward.  The bond market is likely to anticipate this next move, and money market yields are likely to decline over time to reflect this.

Money market yields will continue to remain attractive relative to bank savings account yields for short-term cash needs, but investors should consider allocating a portion of their remaining bond allocation still in money market assets to a diversified bond allocation with at least intermediate term maturities to reduce their reinvestment risk before the yield curve shifts lower. 

Todd Blickenstaff

President and Program Chairman Chair

Portland, OR chapter

American Association of Individual Investors (AAII)

trblick@yahoo.com

Attachment(s)

Chasing high interest rates risk falling into a cash trap...pdf   861 KB 1 version