At Extreme Investor Network, we believe that the era of hiding out in cash is quickly fading away. According to UBS, investors who have been enjoying yields of over 5% on cash instruments like money market funds and certificates of deposit may soon see those rates decline. Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management, advises investors to limit their cash balances as interest rates are expected to decrease, reducing returns on cash.
As the Federal Reserve prepares to cut rates, the $6 trillion currently sitting in money market funds may see lower yields in the near future. This prediction is supported by the market, which anticipates rate cuts beginning as early as September. To combat this, Marcelli suggests building a liquidity strategy that goes beyond cash and money market funds, incorporating fixed-term deposits, bond ladders, and structured investment strategies to cover expected portfolio withdrawals over the next five years.
At Extreme Investor Network, we believe that high-quality credit is well-positioned to outperform in the current market. UBS recommends investing in agency mortgage-backed securities, investment-grade corporate bonds, AAA-rated commercial mortgage-backed securities, and 10-year Treasury inflation-protected securities. The bank particularly favors AAA CMBS, which have shown resilience in volatile rate environments and are expected to continue performing well as rates decline.
UBS also suggests moving out on the curve with 10-year TIPS, as these securities provide protection against inflation by adjusting principal based on changes in the consumer price index. Currently yielding around 2.08%, UBS sees value in TIPS as a way to diversify fixed income portfolios and mitigate inflation risk.
At Extreme Investor Network, we believe that value in fixed income is relative, and investors should actively seek opportunities within the sector rather than being complacent. By following UBS’s recommendations and diversifying across high-quality credit and inflation-protected securities, investors can position themselves for success in a changing interest rate environment. Subscribe to our platform for more expert insights and investment strategies to help you make informed decisions and maximize returns.