Cash is king, as they say. For many investors, holding cash in money market funds has offered strong yields. Many such investors saw the yields they could get by parking their cash and simply dumped their assets therein. What could be simpler? Any decision, however, comes with opportunity costs – and the opportunity cost of parking cash in money markets may be rising.
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Investors need not move all their cash out of money market funds. Like any tool in a portfolio, they have a helpful role to play. Rather, taking excess cash and moving it into investments with higher upside potential is a straightforward move that can avoid paying that cash opportunity cost.
Parked in Money Market Funds? Don't Wait Too Long
Recent analysis by T. Rowe Price explored the kind of moves investors can make to avoid missing out on upside outside of cash. According to the firm’s analysis, a systematic 60/40 investment strategy investing $12,000 each year for five or 30 years would outperform the same strategy using cash alone.
“We believe that the best way to build wealth, earn higher returns, and reach your financial goals is to stick to a long‑term investment plan,” the analysis said.
“Continuing to invest a fixed amount of money at regular intervals, a strategy known as dollar cost averaging, can help keep your savings on track,” it added. “This steady approach smooths out your average purchase price and helps you stay invested during periods of market volatility, which allows your portfolio to profit from the eventual market recovery.”
Investors can use low cost active ETFs as core players in their portfolios. Active ETFs have come on in leaps and bounds in recent years. Additionally, since the ETF rule in 2019, launching new ETFs and innovating on active ETFs has become easier than ever.
Firms like T. Rowe Price have long track records in that space, offering ETFs like the T. Rowe Price Active Core U.S. Equity ETF (TACU), which currently charges a fee of zero basis points through January 30, 2027, and a competitive 0.14% thereafter. Combining tax efficiency and deep, fundamental focus, active ETFs like TACU could prove to be a solid way to get more out of cash – and avoid missing out.
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