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Investors Are Clinging to Cash

Individual investors increased the share of cash in their portfolios to around 25%!

That’s the highest level since March 2020, when the stock market crashed during the onset of the pandemic, according to an October survey by the American Association of Individual Investors.

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American Association of Individual Investors Chart projections 

The higher cash allocations among individuals are the latest sign of how the rocky stretch for markets is leading some investors to take a closer look at their portfolios while stocks and bonds post a simultaneous drop. For example, the percentage of bank deposits tied up in certificates of deposit, or CDs, ticked up in the second quarter. You can read more about that here.

Though cash returns have been meager this year, they have outperformed many other asset classes. One proxy for cash, the S&P U.S. Treasury Bill 3-6 Month Index, which measures the performance of Treasury bills maturing within three to six months, returned about 0.6 percentage point this year through Monday.

That may seem pretty shabby, but the S&P 500 has fallen around 18%, while measures tracking high-yield and corporate bonds have lost more than 12%. Even prices for gold, a popular haven, have fallen around 10%.

“Recent increases in U.S. front-end yields make cash an increasingly viable asset to hold,” wrote Citigroup analysts in a note to clients on Monday. “Cash looks like it is an alternative to investments in risky assets, with yields rising after every central bank meeting.”

source:American Association of Individual Investors
Image: Currency