Cash yields more than 4% as markets become rocky. How use it in your portfolio
Investors looking for steady investments during bouts of market volatility can find solid yields with cash. However, they should be thoughtful on how they incorporate it into their portfolio. This year is expected to be rocky , although strategists still expect stocks to ultimately end higher. On Tuesday, the S & P 500 was on track for a fourth losing day amid concerns around economic growth and President Donald Trump ‘s trade policies. At one point during the trading session, the CBOE Volatility Index jumped to 21.28, reaching its highest point since Jan. 27, when it hit 22.51. It has since moved lower. While yields on cash-equivalent assets like money market funds and certificates of deposit are down from their highs, the Federal Reserve has paused its rate-cutting campaign, leaving rates “higher for longer.” The annualized 7-day yield on the Crane 100 list of the largest taxable money funds is currently 4.16%. In fact, Americans have continued to pour their cash into money market funds, even after the central bank started cutting rates in September. There was $6.91 trillion in total money market fund assets the week ended Feb 19, according to the Investment Company Institute . While down from the record high it hit the week prior, the total is higher than the $6.3 trillion reached in early September. “As money markets pay an attractive yield, they become a true asset class,” said certified financial planner Barry Glassman, founder and president of Glassman Wealth Services in North Bethesda, Md. “When yields are half a percent or below, we are talking about safety. When they are 4%, they become more of an attractive, stable asset class.” Even Warren Buffett’s Berkshire Hathaway has a stockpile of cash . The billionaire said while he’s keeping $334 billion on the sidelines, the majority of money remains in equities. “That preference won’t change,” Buffett said in his 2024 annual letter released Saturday. What to do with your cash When you may need the cash could determine where to park it. Dollars held in high-yield savings and money market funds are easily accessible and can make sense for emergency funds and immediate spending needs. However, interest rates will fluctuate. For more targeted needs, locking in CD rates may work. They have different maturities and a penalty if the money is withdrawn early. If you have enough cash, you can split it between accounts, said CFP Marguerita Cheng. “It doesn’t make sense to tie everything up in a CD only to pay a penalty if you need the money,” she said. “It also doesn’t make sense for everything to be in a high-yield savings account if you don’t need all of it right away.” Cheng, CEO at Blue Ocean Global Wealth in Gaithersburg, Md. and a member of the CNBC Financial Advisor Council , believes the sweet spot in CD maturities is between six months and 13 months. To help with liquidity needs, she suggests building a ladder by splitting the money across several CDs of varying maturities. Still, cash isn’t just for a safety net outside your portfolio, Glassman said. He has recently shifted his fixed-income allocation in portfolios to include more short-term Treasurys. While he once had almost nothing in Treasury bills, they now make up about 4% of the nearly $2.3 billion his firm manages. T-bills have terms ranging from four weeks to one year. “The concern was six months or a year ago that short term interest rates as governed by the Fed were going to head lower and keep going lower,” Glassman said. “The fact that they have stabilized at this level is interesting and makes it a bit more attractive.” In fact, strategists aren’t expecting another big year for stocks, so adding some risk-free returns with T-bills can make sense, he said. The average S & P 500 year-end 2025 forecast from the CNBC Market Strategist Survey released in December is 6,630. That is about 11% higher than where the index closed on Monday. Perryne Desai, senior manager in the fixed income product group at Vanguard, suggests high-yield savings accounts for immediate needs and money market funds to save for big purchases expected in the coming months. Short-term Treasurys can also be a good place for cash that can be held a little longer, she noted. Vanguard recently launched its Ultra-Short Treasury ETF (VGUS) , which has an average effective maturity of 1.3 years, and 0-3 Month Treasury Bill ETF (VBIL) earlier this month. The average cash allocation in the firm’s portfolios is around 2% to 5%, Desai said. “This cash sleeve can act as a little bit of a buffer in your investment portfolio to ensure that you can engage in reasonable rebalancing, reasonable strategic asset allocation,” she added. Looking beyond cash Still, holding too much cash won’t help your portfolio outperform. “Typically speaking, even if you invested in the worst possible time every single year, that still would have significantly outperformed the same amount left in cash over the long run,” said Heather Knight, a national brokerage coach at Fidelity. Cash instruments also have inflation risk, with the higher cost of goods diminishing its value, as well as reinvestment risk, she said. For instance, once a CD reaches maturity, investors may not be able to reinvest that money at the same rate. Knight suggests having six months of living expenses saved in cash, and then investors should decide if excess funds should go into stocks for long-term growth or bonds to help provide some safety and income. Allocations across cash, stocks and bonds all depends on each person’s personal financial journey, she said. “What are you using this money for? When is your retirement coming up,” Knight said. “There are folks a lot younger sitting in cash, waiting and trying to time the market. That is a danger.” For those that feel they have too much cash, Blue Ocean Global Wealth’s Cheng suggests dollar cost averaging into equity funds. This involves investing a specified amount of money at regular intervals — for instance, monthly or every two weeks — regardless of what the market is doing at that particular time. “Start small,” she said. Glassman likes core bond funds and short-term high yield bonds.
