Chart of the Week – Money, Money, Money

Welcome to this week’s Chart of the Week.

When uncertainty reigns in markets, cash feels safe. It sits in your account, untouched by volatility, seemingly secure from the stock market’s unpredictable swings. But what’s often overlooked is the silent risk cash carries – the risk of missing out.

This year, despite some choppy moments, the market has seen more winning than losing days. Of 184 trading days for the S&P 500 so far in 2024, 106 of them – or 58% – have delivered positive returns. On the flip side, that means, of course, 42% of days have been negative. What’s striking, though, is how small that margin is. In a bull market, even when things are broadly positive, nearly half the time the market is down on any given day. If you’re waiting for the perfect time to invest, you’ll often miss the days that matter most. In fact, 14 standout days have been responsible for the S&P 500’s entire year-to-date return. Blink, and you’d have missed the opportunity.

Holding cash might shield you from the day-to-day drama of stocks, but it also keeps you on the sidelines during the moments that really count. And these moments are unpredictable. Whether it’s Nvidia launching new chips for artificial intelligence, the Fed hinting at rate cuts or Meta smashing earnings expectations, these pivotal events are difficult to anticipate. Yet, they make all the difference.

As the chart below shows, since 2019, US retail investors have parked an additional $912 billion in money market funds – nearly doubling their cash holdings in less than five years. With short-term yields tempting and the promise of safety, it’s easy to see the appeal. But here’s the thing: history tells us that once money flows into cash, it tends to stay there. It doesn’t rush back into the market, even when interest rates fall. It took years for cash to flow back into stocks after rate cuts in the early 2000s and the financial crisis of 2008.

So, what’s the real risk of holding cash? The risk of standing still while the market moves forward.

Key Takeaway: While cash offers a sense of stability, investing, even with its ups and downs, offers the potential for growth. And in a world where time in the market beats timing the market, the sidelines aren’t where you want to be for long.

Have a great week,

Nathan Sweeney, Chief Investment Officer of Multi-Asset

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