Investment Advisers Recommend Shifting From Cash As Fed Eases Rates

Investment advisers are advising clients to move away from cash allocations as the Federal Reserve begins easing interest rates, predicting less appeal for money-market funds. The advisers expect a shift towards riskier, higher-yield investments. Retail money-market funds have attracted significant inflows since 2022, but may see reduced interest moving forward.

Investment advisers are urging clients to divest heavy cash allocations now that the Federal Reserve has commenced its much-anticipated interest-rate reduction, aiming to lessen the allure of money-market funds in coming months. Retail money-market funds have seen $951 billion in inflows since 2022, as reported by the Investment Company Institute.

"As policy rates fall, the appeal of money-market funds will wane," said Daniel Morris, chief market strategist at BNP Paribas Asset Management. On Wednesday, the U.S. central bank slashed the federal funds rate by an unconventional 50 basis points to a range of 4.75% to 5%, reducing the attraction of cash in deposit accounts and similar instruments. "You're going to have to shift everything up in risk," stated Jason Britton, founder of Reflection Asset Management.

Ross Mayfield of Baird Wealth warned investors to consider alternatives or longer-term investments to lock in returns and avoid exposure to further rate cuts by the Fed. While a week may be required for reactions to the Fed's decision to manifest in money-market fund flows, analysts observed that it remains challenging to convince retail investors to abandon their cash positions.

(With inputs from agencies.)