Sitting in Cash? What’s Your Next Move?

Chess is a unique game in that winning is almost entirely dependent on skill and strategy. There are no dice, shuffled cards, or random numbers; there is no element of chance or luck.

For the best chess players in the world – the grandmasters – their key strategic strength lies in their ability to think many moves ahead (as many as 15-20) across multiple lines of play.

Their end goal? The checkmate – to win the game.

Investing and chess are alike in that strategy is critical to success. Notwithstanding the risk of the unknown in financial markets, we believe strategy is a vital aspect of investing.

This is of topical importance because in the U.S. alone there is currently more than $6.3 trillion sitting in cash (or money market funds) – more than at any point in history and almost double compared to five years ago. The key drivers of this trend have been a combination of excess liquidity that entered the financial system in response to COVID-19 and the higher yields on offer following the Federal Reserve’s (Fed) 525 basis points of rate hikes.

We get the appeal of cash. After a decade-plus of zero interest rates, savings accounts, money markets, and certificates of deposit are paying relatively attractive yields with negligible risk. Additionally, some investors may be worrying about a recession, opting to park their funds in cash and adopt the wait-and-see approach. Now that cash is giving them something, some investors may not feel like they are sacrificing much to be in a risk-off stance.