Chart Talk {04.10.18-Cash}

The Wall Street Journal a few days ago wrote an article on why cash should be in your portfolio again.  We've never thought that cash doesn't have a place in one's investments.  If nothing else in times of uncertainty it is an asset that doesn't go down, even if it hasn't paid you much to own it these last 10 years or so.  Now that may be changing.  

For the first time in years cash is paying you something again.  What's important for investors is that if cash yields are rising then so are other fixed income returns.  Take a look above.

For years the S&P 500 has bumped along with a roughly 2% dividend yield.  Since the market crash yields on virtually every other financial instrument have collapsed.  I used to say that the S&P 500 paid you a treasury equivalent yield but with growth potential as well.  It was the only game in town. Not anymore as the chart above will attest.  Many other short term investment instruments yield something now close to what the S&P 500 pays out.  Therefore, for the first time in years, investors can begin to contemplate a part of their portfolio with a fixed component that actually yields them something.  These yields are likely to rise as the Federal Reserve has indicated they expect to raise interest rates at least two more times this year and maybe a third.

The upshot of this is that investors may finally start having a tool that reduces volatility and equity exposure in portfolios that actually yields them something again.  The downside is that if market yields need to rise to some level in order to be competitive with bonds, say to that 3% level, then stocks may be encountering another headwind as we move forward.  

Back tomorrow and then next week.

*Long ETFs related to the S&P 500 in client and personal accounts.  Short S&P 500 in a personal account as part of a separate individual strategy.  Investments can change at any time without notice.