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Investors’ cash buildup comes at a cost

Investors’ cash buildup comes at a cost

NEW YORK, Feb 12: Investors sitting on a mountain of cash built up since late last year may be paying a price for playing it too safe in the first weeks of 2019, reports Reuters. Individuals and institutions have poured tens of billions of dollars into money market funds amid the aftershock of last year’s punishing losses from stocks and next-to-nothing from bonds. Ongoing turmoil from trade tensions between China and the United States, political infighting in Washington and interest rate increases from the Federal Reserve have also inspired the rush into cash. Despite those concerns, Wall Street has staged a comeback to kick off the new year, with the S&P 500 .SPX recording its best month since 2015 in January, while junk bonds produced their strongest monthly return in more than seven years. At same time, the yields on money funds stuffed with all that safe- haven cash have trickled lower. Analysts and fund managers said the stampede into cash is understandable, but safety comes with a steep opportunity cost. “Investors can penalize themselves. While money market funds offer safety, they come at a cost as they accept a lower yield,” said Jerome Schneider, head of short-term portfolio management at PIMCO in Newport Beach, California. Money market funds’ appeal skyrocketed as high-flying FAANG shares (Facebook Inc (FB.O), Amazon.com (AMZN.O), Apple Inc (AAPL.O), Netflix Inc (NFLX.O) and Google’s parent Alphabet Inc (GOOGL.O)) took a spill with the rest of the stock market, and junk bonds sank deep into the red in the last weeks of 2018.

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