Investors Say Cash is King

Summary: In the past, investors would hold on to cash until the prospects in the market brightened. And then, money would once again pour back into stocks. Today, however, cash seems to be a sought-after asset class for investors intending to keep it in their portfolios long-term.

Even with little returns, investors are holding on to their cash longer than expected.

 Harris Private Bank chief investment officer in Chicago, Jack Ablin, watched this play firsthand. He has to balance the past actions of moving back to the market or the cautionary tone he’s hearing from bank clients. Historical data shows that stocks rallied over the next two years when assets in mutual funds money market exceeded 25% of market capitalization found in Standard & Poor’s 500 indexes.

On March 9, this ratio jumped to over 60%, which is almost triple of the median level in this decade’s early years. But today it narrowed to 45%. However, Ablin still considers this level to be unusual, and might be a potential fuel source for further stock gains if ever investors would choose to redeploy low-yielding cash.

Ablin said “If the stock market goes higher and the numbers of corporate earnings progress, some of these investors may feel left out and might decide to buy again. That’s driven by human nature.” But there’s evidence that big-name investors argues otherwise. They’re clinging to their cash because they’ve been burned by the recent bear market and worried not having enough cash.

And even with the huge government stimulus program, many Americans are bolstering their nest eggs rather than spending. But as long as cash remains on the sidelines, there would be no fuel to propel the economy forward.