Money Market Fund Boom: Are You Missing Out on Market Gains?

Rising Popularity of Money Market Funds

Over the last year a lot of advisors have told me that they have a large chunk of asset in Money Market funds because they felt nervous about both equities and fixed income and have been peeling around 5% annually with no risk, even with obvious limit to the upside, seemed like a good call.

Massive Influx in Money Market Assets

Money market assets have gone nuts adding about a trillion dollars in the last year (as seen in the chart below). It makes sense. They feel like a sure bet, but there will likely be an opportunity cost on the other side. Advisors understand that it won’t last forever yet most don’t have a strategy for what to go into when dropping rates makes Money Markets less appealing.

Comparative Performance Analysis

Let’s look at the last year (view the chart below). Since the start of June in 2023 you did a little better than High Yield, which came in at just under 4%, and indeed you made a good move when compared to Aggregate bonds which lost just over 2% in the last year. However, the S&P 500 has returned around 27%, so you made less than a fifth of the S&P.

The Uncertainty of Market Timing

The tricky part is now what? People like to believe they are going to get a clear sign of when to make a move because in retrospect it always seems so obvious, but the reality is that this is why we spend so much of our time honing quantitative metrics. It is hard, and you may prefer to spend your time running your business, not maniacally watching indicators for when to allocate to where.

Risks of Market Absence

Another issue is failing to participate in market gains for extended periods is often what provokes investors’ distress. While many feel like markets are overly concentrated and near the top, we could easily have a repeat of what we’ve seen over the past year in the next year, and that could be a breaking point. For investors, the way to approach this is to be invested, but hedged, positioning for optimism and growth, but address contingencies. 

Money markets have always been a bad long-term idea. They still are.

Past performance is no guarantee of future results.

Notes: High Yield as represented by iShares High Yield Corporate Bond ETF

. Aggregate Bond as represented by iShares Core US Aggregate Bond ETF

AGG

+0.14%

. The S&P 500 as represented by State Street SPDR S&P 500 ETF

SPY

+0.77%

.

DISCLOSURES

Toews Asset Management is an SEC registered investment adviser with its principal place of business in the State of New Jersey.

This presentation may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

This video is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any investor.

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