With interest rates so high, should you be invested in cash?
As interest rates in the U.S. reach their highest level in decades and the yield curve inverts, investors are left wondering where to put their money. Institutional-bond investors believe that the U.S. economy will slow down enough for the Federal Reserve to begin reducing interest rates, leading them to load up on 10-year bonds. But the timing of when the Fed will shift its focus from inflation to economic growth is uncertain. This uncertainty has prompted some investors to consider alternative options, such as investing in cash.
Is cash a safe bet?
Investing in cash, whether through a bank CD or Treasury securities, offers the advantage of a 5.5% yield. For income-oriented investors, this may seem like an attractive option. However, the time for this cash strategy may be running out. According to data from Wells Fargo, parking cash, even at current high rates, can lower your investment-portfolio returns over the long term.
Why consider other options?
The employment numbers for August show an increase in the U.S. unemployment rate, which supports expectations that the Federal Reserve will hold off on another interest-rate increase. However, it’s also possible that investors who are betting on a decline in interest rates are jumping the gun. Rates could rise much higher from the current levels.
High interest rates and housing
Mortgage-loan rates in the U.S. remain at their highest levels in generations, but loan application volume has picked up. If you are looking to buy a home, it’s important to consider all options. Rather than assuming a 30-year mortgage loan is your only choice, you might save hundreds of thousands of dollars on interest by opting for a 15-year loan. A detailed comparison based on the median U.S. home listing price and average loan rates can help you make an informed decision.
A potential catalyst for bitcoin
The Grayscale Bitcoin Trust has been facing pricing issues due to the fund only holding bitcoin and having a 2% annual fee. The share price is significantly lower than the NAV, prompting Grayscale to seek conversion to an ETF that can bring the share price closer to the NAV. While the SEC rejected their application for a bitcoin ETF, a recent court ruling found the SEC’s decision to be “arbitrary and capricious” and in violation of federal law. This ruling could potentially lead to the SEC revisiting their decision.
The King is sued over size
Burger King is facing a lawsuit claiming that the company has overstated the size of its burgers by 35% since 2017. This highlights the importance for companies to stand behind their claims and deliver on their promises.
Money + family = Moneyist
When family conflicts arise over money, it can be a challenging and emotional situation to navigate. Quentin Fottrell, known as the Moneyist, helps individuals in these situations by providing advice and guidance. One recent case involved a man dealing with an adult daughter who made a bitter request for ongoing financial support. These types of conflicts require careful consideration and a focus on finding a resolution that is fair for all parties involved.
A stock screen
The media industry is constantly evolving, presenting challenges for the largest players in the sector. High debt levels are a common issue, but there are outliers. A screen of dozens of stocks in the S&P Composite 1500 communications-services sector reveals that only one of the companies has zero debt, making it an interesting choice to consider.
It’s nearly iPhone time again
Apple is set to release new products on September 12, including the highly anticipated iPhone 15 Pro. Consumers can expect to pay a premium for these new devices.
Corporate results and the Ratings Game
As we approach the end, it’s worth noting that corporate results and analyst ratings play a crucial role in the investment landscape. Monitoring these factors can provide valuable insights and help inform investment decisions.
Related Facts:
- Interest rates in the U.S. are at their highest level in decades.
- The yield curve is inverted.
- Institutional-bond investors believe the U.S. economy will slow down, leading them to load up on 10-year bonds.
- Cash offers a 5.5% yield through bank CDs or Treasury securities.
- Parking cash can lower investment-portfolio returns over the long term.
- Mortgage-loan rates in the U.S. remain high, but loan application volume has increased.
- Grayscale Bitcoin Trust faces pricing issues and seeks conversion to an ETF.
- Burger King faces a lawsuit alleging overstated burger sizes.
- Family conflicts over money require careful consideration and resolution.
- Some stocks in the communications-services sector have high debt levels, while others have none.
- Apple is preparing to launch new products, including the iPhone 15 Pro.
- Corporate results and analyst ratings are important factors to consider when investing.
Key Takeaway:
While investing in cash may seem like a safe option with high interest rates, it’s important to consider the potential long-term impact on investment-portfolio returns. The uncertainty surrounding the timing of interest rate decreases and the possibility of rates rising even higher make it crucial to explore alternatives and make informed decisions based on individual circumstances.
Conclusion:
With interest rates at historic highs and an inverted yield curve, investors are faced with the dilemma of where to invest their money. While cash may offer a high yield, there are drawbacks to consider, such as the potential impact on long-term investment-portfolio returns. It’s essential to weigh the risks and benefits of various investment options and make informed decisions based on individual circumstances and goals.
