Fearful of a Recession, Investors are Rushing into Cash and Cash-Equivalent Investments

Individual investors are pouring billions of dollars into cash-equivalent investments such as money-market funds and certificates of deposit, fearful of a recession later in the year. The collapse of Silicon Valley Bank, Signature Bank, and most recently, First Republic Bank has raised concerns about stability in the banking sector. Analysts predict that this trend will continue. However, financial advisers caution that having a cash strategy beyond fear is important, and investors should not be seduced by the higher rates these products have to offer. Cash or cash equivalents should only represent a small percentage of one's asset allocation, often ranging from 5 to 10 percent, depending on individual financial goals and risk tolerance. Investors must also consider the Federal Reserve's actions on interest rates in the months ahead, as yields on CDs and other cash-equivalent instruments may decline if the Fed cuts interest rates instead of raising them.