The Compound and Friends: Get out of Cash
Markets stand at a pivot point. Growth is slowing. And unemployment has ticked higher. It’s now at 4%, right at the Fed’s target rate. However, the Fed is still contending with inflation running hotter than desired.
The trade-off now is to either let unemployment rise higher or let inflation kick up again. Meanwhile, markets have adjusted to the idea that interest rates won’t drop much this year. But it does mean that investors need to consider their options now.
Currently, cash looks attractive. Yields stand at 15-year highs. It’s easy to see why investors continue to sit on record levels of cash.
However, if interest rates drop, yields will drop. And that will make other assets like real estate and stocks better alternatives.
While yields may not drop much, markets have adjusted to today’s high rates. That suggests that stocks can continue higher. Especially if the rollout of AI technology leads to bigger profit margins for companies.
Either way, cash offers low returns, even with markets at all-time highs. Investing in long-dated bonds could be attractive once interest rates start to drop. That could mean locking in a high yield and seeing capital gains.
Alternative assets have also been performing well. And analysts expect alternatives like gold and bitcoin to see continued gains in the years ahead.