You may have noticed that the Bloomberg Aggregate Bond Index is off to one of…
J.P. Morgan Publishes a quarterly Guide to the Markets that contains dozens of charts on the state of the economy and investing. Among the charts is one that details the amount of money held in retail savings accounts and money market funds and the income generated by $100,000 invested in a 6-month CD. As of the end of the 3rd quarter of 2016 that number was more than twelve trillion dollars. That adds up to 69.4% of M2 money supply as a percentage of GDP and the income generated on $100,000 was $370.
Why are so many people choosing the option that gets them so little in return? My guess is that the fear of losing money is greater than all of the other negatives of holding cash and the potential benefits of other investments just aren’t enough to get people off the sideline. Added to that is my observation that many view investing as an all or nothing game. To some, investing is a choice between being either “in” or “out” of “the market” whatever that is.
Unfortunately, there is a hidden cost to holding cash. For the last seven years, the income generated from cash has failed to beat inflation which means that the value of your money, in terms of purchasing power, is less and less as time goes on. It doesn’t have to be that way.