The revenge of the boring, low-risk cash account may be upon us.
When Federal Reserve policymakers meet on Tuesday, they are virtually certain to raise their benchmark short-term interest rate a quarter of a point, to 4%. It would be the 12th such increase since mid-2004.
That move should assure that rates on bank certificates of deposit and money market accounts will continue to rise as well.
Certainly, nobody's in danger of getting rich off single-digit bank yields. Still, this is the best that savers have had it in four years. And given the relatively poor returns on U.S. stocks and bonds this year, people who prefer to play it safe may be feeling a bit smug.
Despite a rousing stock rally Friday after the government's surprisingly strong report on third-quarter economic growth, the blue-chip Standard & Poor's 500 index is barely positive this year, up about 0.3% including dividends. The average U.S. stock mutual fund is up 1.3%, according to Morningstar Inc.
Long-term U.S. bond mutual funds are up 1% to 2% for the year, on average, including interest earnings and principal change.
Compared with those results, the 3.2% annualized yield on the average money market mutual fund sounds enticing. The 4.2% yield on six-month Treasury bills seems downright lush.
In the 1990s, investors were taught that cash was trash. Stocks were the place to be, and bonds were a fine idea too.
In this decade, the preferred investment has been real estate.
But as long as the Fed is tightening credit, stocks, bonds and real property all face a troubled outlook. The one beneficiary of the central bank's rate-raising campaign is cash.
Now, no respectable financial advisor would suggest that clients take this year's investment results as a reason to shift every last dollar into a money market fund or a T-bill.
Some make the case that this is a great time to be bargain hunting for stocks. Others say we're getting close to the point where investors will want to lock in long-term bond yields.
Even so, if the market trends this year have given investors a better appreciation of cash's role as a stabilizing force in a portfolio, that wouldn't be a bad thing.
Nor would it be so bad if people viewed rising short-term interest rates as an invitation to boost, or create, the emergency savings fund that every family should have (think hurricanes, earthquakes, sudden illness, etc.) but often defers because of spending needs or wants.
