In the united States, money market balances have increased from less than US$3.5 trillion to US$4.6 trillion so far away in the horizon 2020, according to Refinitiv Lipper data. Commercial bank balances increased from US$13.3 billion from US$15.5 trillion dollars over the same period, according to the Federal Reserve Bank of St. Louis. Essentially, over US$3 billion has been moved into cash and money market funds since the month of January.To put this figure in perspective, it would represent almost the entire market value of Apple and Microsoft combined, the two most valuable companies in the world.
In Canada, we have statistics from the Investment Funds Institute of Canada, which monitors the mutual funds and Etfs. At the end of May, the number of money market Etfs and mutual Funds was $43.6 billion, compared to $ 30.3 billion a year earlier. According to the US statistics, I would imagine that the bank balances have seen a pic of a lot more than $13 billion in Canada.
There are certainly good reasons to hold cash and money market funds. They are safe and liquid. If you have short-term needs for funds or as a cushion of safety or for the operation of a business, it is a valid option. However, as a choice of long-term investment, it has not been proven to be wise.
When I see a spike in these sales, this increase represents an investment decision. It is the people and businesses choose to be in cash rather than other forms of investments. Today, these hundreds of billions of dollars are likely to earn somewhere between zero percent and one percent. I know that it is possible to earn higher rates in very small firms or by locking your money for a period of time, although the locking of your money gets the advantage of liquidity.
Of interest, the largest money market funds in Canada have an annualized 10-year return of less than one percent.
If the majority of Canadians expect to long-term investment returns of five percent and more, and money market funds have not provided a percent over the long term, the only reason to have long term money in a money market fund or bank account either by fear or a genuine belief that you are able to add value through the timing of enter and exit.
Timing the market effectively, by the movement of species is possible, but for most it is not effective, if for no other reason than the markets back in time. However, there is another reason why timing the market is usually not effective. If we look at the average of the monthly data from 2009, looking from the money market balance in Canada and the performance of the TSX 60, we see that investors missed a large part of the race.
In March, April and May 2009, the TSX 60 is a total of 26.8%. Money market balances reached a peak at the end of the month for March and has dropped a total of 1.7% compared to the same three-month period. This means that from a record level in the money market holdings, only a very small percentage of investors had reinvested in the time to take advantage of the rebound. From June 2009 to January 2010, eight months after the big gains, the TSX 60 is up 3.2 percent. What happened to the silver market? Balances decreased by 35 percent, or $23.5 billion moved from the safety of the money market again in a form of long-term investment. No problem with it moving back, but they did it after missing a large part of the recovery.
I mentioned earlier that the only reasons to move to long-term investment of money in an asset class that is guaranteed in withdrawal compared to your long-term goals is either fear or a true belief that you are able to add value through the timing of enter and exit. The reality is that most investors bail and put funds in the cash after at least a substantial portion of the losses have occurred. As seen in the 2009 stimulus, then they return the money to the investment after the most significant gains have already taken place. Essentially, most investors do not add value to their portfolios by switching out of cash and then reinvest. This leaves a reason to go to cash. It is the fear.
I don’t think I need to examine the reasons why fear is not conducive to the long-term growth performance of the investments. If you look at the chart below, it shows returns for the 25 years from Dec. 31, 2019. The yields are similar for a long period of time. Of these classes, the only thing we know about the future is that U.S. T-Bills will produce a lower yield of 2.5% in the near future. The bottom line is that the money, the money market, and the Cpg are not good for your long-term investment returns.
What are the best ways to invest in silver today? Just about everything. This is not a comment on the direction of the stock market in the short term, but rather a comment on the long-term investment and the inability to predict the future — especially in the short term.
If we look at the dividends and other revenue yields, we’re going to see a series, but they are all more than the return of the cash. As for growth, beyond those returns, we simply put our faith in the long-term history. For reference, I also showed the private credit yields available through TriDelta Alternative of the fund at the end of the beach.
As a last thought, history tells us that major changes in species are in the short term. When thousands of billions of dollars of return on the market (which will be the case), you want to be before the end of the run to the place where you can benefit from dollars that come from behind you, or the back-end.
If you’re sitting on cash positions and financial markets today, the best plan of action is to get back to normal.
Ted Rechtshaffen, MBA, CFP, CIM, is president and wealth advisor at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and estate planning.