{"id":88651,"date":"2023-11-25T08:50:00","date_gmt":"2023-11-25T13:50:00","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/now-is-the-time-to-deploy-your-cash\/"},"modified":"2023-11-25T08:50:05","modified_gmt":"2023-11-25T13:50:05","slug":"now-is-the-time-to-deploy-your-cash","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=88651","title":{"rendered":"Now Is The Time To Deploy Your Cash"},"content":{"rendered":"
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I understand the appeal of hoarding cash in virtually risk-free, 5%+ yielding money market funds.<\/p>\n

Really, I do.<\/p>\n

It feels safe. It feels like a shield from the many economic and geopolitical risks present in today’s environment.<\/p>\n

But some investors have overdone it on their cash position, becoming too conservative with the degree to which they are hiding in cash.<\/p>\n

Over the last year, assets in money market funds have soared over 20%, from around $4.5 trillion last year to $5.5 trillion now.<\/p>\n

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Investment Company Institute<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The interesting thing is that this is during a 12-month period when the S&P 500 (SPY) is up over 15%!<\/p>\n

Normally, during spikes in cash holdings, stock prices are crashing as investors pull money from stocks to hide out in cash.<\/p>\n

This time, it appears that investors have pulled money out of a handful of specific sectors such as real estate (<\/span>VNQ), utilities (<\/span>XLU), renewable power producers (<\/span>RNRG), and green energy companies (<\/span>ICLN) while piling into the Magnificent 7 mega-caps (<\/span>MAGS) and cash.<\/span><\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

Decide for yourself how much a hunch is worth, but my own hunch is that this trend will reverse in 2024.<\/p>\n

As interest rates recede, the rate-sensitive sectors that have been pummeled since the beginning of 2022 should see a nice relief rally. Cash levels should decline as FOMO (“fear of missing out”) takes over again. And, finally, I’m guessing<\/em> that the Magnificent 7 either decline or stay rangebound.<\/p>\n

Don’t get me wrong. These seven companies are truly magnificent, but at an average P\/E ratio of about 35x, how much of that magnificence is already priced in?<\/p>\n

Now is the time to deploy your investable cash.<\/p>\n

(I say “investable” cash because, as I explained last week in “How To Live Off Dividends Forever,” I’m all for maintaining a situationally appropriate cash savings fund.)<\/p>\n

If you wait too long, the Federal Reserve will eventually lower the Fed Funds Rate (“FFR”), immediately reducing the yield on your money market cash, while rate-sensitive dividend stocks will most likely<\/em> rally from their current level, as they have already begun to do.<\/p>\n

We all know that successful long-term investing is about delayed gratification. This is an example of that. Even if you are giving up a slightly higher yield in your money market fund to buy dividend stocks, it is still a good trade.<\/p>\n

If you pick your dividend stocks well, you would be selling an asset that is highly likely to produce a falling<\/em> income stream (money market fund) to buy assets that are likely to produce rising<\/em> income streams (quality, dividend-paying companies).<\/p>\n

Below, I’ll highlight some of the high-quality but rate-sensitive dividend stocks that I’m buying. But first, if you would indulge me, I’ll provide a brief update on the macroeconomic backdrop.<\/p>\n

The Deflating “Higher For Longer” Narrative<\/h2>\n

How quickly the narrative changed from “higher for longer” to “how soon will the Fed cut?”<\/p>\n

The truth is, as I’ve argued many times, that the Fed’s aggressive monetary tightening regime was always likely to result in a recession or crisis of some sort. That’s the historical pattern.<\/p>\n

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CBRE<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

This chart only shows the non-US crises that have coincided with peaks in interest rates, but much the same data could be cited about US crises.<\/p>\n