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How does a stash of cash waiting on the sidelines affect you?
Let’s find out…
Investors’ cash held on the sidelines is at an all-time high of $23.6 trillion. To put this in perspective, the stock market is valued at about $50 trillion.
This cash is in money market accounts, CDs and other short-term savings vehicles.
Investors stash cash out of caution. Plus, you can earn roughly 5% on cash today, compared to just 0.01% in 2010.
Why share this fact?
Because when sidelined cash comes back into the markets, something wonderful will likely happen.
Specifically, when cash flows back into the markets, stock prices typically rise, which benefits us since we’re invested in stocks and bonds.
Consequently, many of the stocks you own will likely increase in value. While we do keep some cash reserves, they’re only to ensure we meet your financial goals.
When will cash start pouring back into the markets?
No one knows for sure.
However, two key triggers are likely:
#1—Falling interest rates: When rates go down, investors will no longer be able to earn 5% on their cash and, therefore, they’ll be looking to reinvest in equities or similar.
#2—Increased confidence post-elections: Once we know who the next president is, we’ll likely get back to business-as-usual.
Keep in mind, the Fed is unlikely to cut rates because it knows that the impact of raising and lowering interest rates can benefit a political candidate, and it doesn’t want to appear biased politically. Therefore, the Fed may wait for the election to be settled before acting again.
Overall, we’re optimistic about our investments.
Cash flowing back into the markets will likely boost your portfolio’s performance.
Sincerely,
Dave
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