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Cash is no longer king. Here are 3 alternatives investors are trading it for, according to chief money managers.

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Cash is no longer king. Here are 3 alternatives investors are trading it for, according to chief money managers.

  • Investors face diminishing returns from cash alternatives as interest rates decline.
  • Money market funds offered low-risk yields, but missed gains in the S&P 500.
  • Treasuries, gold, and bitcoin emerge as alternatives amid dollar concerns and inflation pressures.

Just a year ago, if the stock market got bumpy or felt risky, investors could shave a bit off their positions and park in cash-like money market funds yielding slightly over 5%.

Today, cash alternatives are yielding slightly less. Still, they remain near or above 4.5%, which is a tempting return in exchange for no risk. But as we head deeper into an interest-rate-cutting cycle, the benefits of sitting on the sidelines will diminish, and investors will need to rethink their strategy.

While the perk of a low-risk asset with a decent yield seems like a sweet deal, it actually did some investors a disservice, says Mark Malek, the CIO at Siebert. Specifically, those who didn’t have liquidity needs but chose to sit in cash anyway missed out on a strong year for the S&P 500.

“I’m going to say something controversial, which is that we weren’t having as many of these conversations when money markets were almost zero,” Malek said. “Clients had no other alternatives, so they were putting their money to work in the equity markets or in the best bonds they could find. Many people should have probably invested in equities and would’ve probably gotten great returns.”

The main advantage money markets give investors is quick access to their cash, followed by lower risk and then a decent yield. The former is harder to match. But the latter two can be found in Treasuries, notes, and bonds, Malek said. By sticking to shorter-term Treasuries, investors can still meet their liquidity needs.

“That’s where the whole conversation changes because now you’re saying, ‘OK, we can get you into a three-month bill, but then you would want to hold that,'” Malek said, adding that he would never advise a client who needs liquidity to go further out and buy a two-year note. And anyway, the yield curve is inverted, meaning there’s no term premium, with the best yields coming from the one-month out to the six-month Treasury.

It’s about gauging liquidity needs and then sticking to bills or looking for older notes that are months away from maturity, Malek said. The main challenge with going shorter term is the rollover risk, which happens when you’re faced with less favorable yields once the current Treasury matures. For investors who don’t have immediate cash needs, Malek advises a six-month bill at a 4.5% yield since he expects rates to be 75 basis points lower by then. If liquidity needs arise, investors may be able to sell for a profit if the Fed’s cutting cycle is steeper than expected, he added.

Investors with a bit more of a risk appetite who want to maintain a yield just over 5% should consider investment-grade corporate bonds, which are AAA to BB-rated, Malek said.

Dollar alternatives

While interest-rate cuts are part of the move away from cash, there are other factors that make the dollar, in general, a crummy place to be right now, says David Miller, the CIO at Catalyst Funds.

Inflation remains present even if it’s not as high as it was. The Federal deficit continues to balloon. And, the weaponization of the dollar against countries like Russia has made it less attractive globally, Miller noted.

Based on these additional concerns, Miller says the closest alternative would then be gold, and big money is vying for it. Central bank demand for gold reached its highest in a decade in 2022 and 2023. Although it slowed in 2024, it was still up by 6% from a year ago in the second quarter, according to the World Gold Council.

Investors may feel queasy about the asset as it hits peak prices near $2,800 per ounce. But you have to consider the value of the dollar against that backdrop, Miller noted. Simply put, the M2 money supply, which includes cash and cash alternatives, has skyrocketed since 2020 by over 36%, debasing the dollar.

For investors looking for that gold alternative, Millers says they can buy coins, bars, and even gold ETFs.

Bitcoin is another alternative that more risk-prone investors look to. As of Tuesday, it surpassed $71,000, hitting near its all-time highs as hedging demand grows. While it has similar liquidity to cash, it’s much more speculative, Miller noted.

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