Americans are flocking to cash amid the market turmoil, with money market fund assets hitting a record $7.03 trillion as of the week ended Wednesday, according to the Investment Company Institute . Markets have been rocky of late as investors grapple with uncertainty around President Donald Trump’s tariffs and their impact on the economy. “Recent strong inflows may be a response to the spike in volatility in the financial markets we’ve seen lately,” said Shelly Antoniewicz, ICI chief economist. “With short-term interest rates still at elevated levels historically, money market funds — which pass earned interest on to their shareholders — are relatively more attractive to both institutional and retail investors.” Retail investors added $30.35 billion to money market funds in the week ended Wednesday, bringing their total assets to $2.84 trillion, according to ICI. Institutional money market funds saw assets rise during the period by $20.8 billion to $4.19 trillion. Yields on money market funds — which once topped 5% — are down from their highs, but they still remain attractive. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds is currently 4.16%. Peter Crane, founder of money market tracking firm Crane Data, thinks the inflows into money markets have largely been driven by a shift away from lower-paying bank deposits. Here are the largest taxable money market funds for retail investors, according to Crane. Optimizing cash holdings Still, investors should mind their cash allocations carefully, UBS said in a note Friday. Rates on cash-equivalent assets can drop sharply if there is surprise weakness in economic data, strategist Vince Heaney warned. “Amid falling interest rates in Europe and potential risks to economic growth in the US, we believe investors holding excess cash should seek more diverse and durable sources of portfolio income,” he wrote. In fact, cash underperforms other asset classes on a long-term basis, he said. Stocks have beaten cash in 86% and 100% of all 10- and 20-year holding periods, respectively, Heaney noted. Equities have topped cash by more than 200 times overall in terms of returns since 1926, he added. In a 12-month holding period, bonds have outperformed cash 65% of the time. That rises to 82% over a five-year period, 85% over 10 years and 90% over 20 years, Heaney said. People should have money stashed in a cash-equivalent account for any liquid needs, including an emergency fund and any potential big purchases coming up. Money market funds and high-yield savings provide liquidity, but have rates that can fluctuate. Investors can lock in rates with certificates of deposit, but they should be aware that there are penalties for early withdrawals. One way to stagger liquidity is to build a CD ladder of varying maturities. How to boost income There are several ways investors can increase income in their portfolio right now, UBS’ Heaney said. First, high-grade and investment-grade bonds offer a compelling risk-reward, he said. Heaney expects mid- to high-single-digit returns for medium-duration bonds in U.S. dollar terms over the next 12 months. Investors can also spread exposure to higher-yielding fixed income, private credit , senior loans and equity income while managing risks, Heaney suggested. For those who need money in more than a year’s time, short-dated fixed income may be an option that could offer better risk-adjusted returns than cash, he said.
