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As of late May, there’s nearly $8.3 trillion sitting in money market accounts. On the surface, that number is staggeringly high given the performance of stocks, particularly growth fare, this year so the figure is worth examining.
As the Investment Company Institute (ICI) points out, more than half the cash parked in money markets is institutional money, meaning some of that money has to be there. For example, insurance companies have to hold set percentages of assets in cash in the event they have to pay out to policyholders following catastrophes. Likewise, active fund managers have to hold cash.
Still, the ICI data indicate retail investors account for $3.1 trillion of the total currently sitting in money markets. Alone, that’s an eye-catching figure if for no other reason than that $3.1 trillion is nearly three Berkshire Hathaways.
Interesting footnotes aside, advisors should pay attention to retail investors’ embrace of money markets for various, including an extremely important one: a lot of that cash is held by women.
Women Are Stashing Too Much Cash
A plethora of studies confirm that women are better savers than men. Under normal circumstances, that’s obviously a good thing, but when it comes to issuers such as wealth-building and long-term care and retirement planning, cash isn’t anyone’s friend. That’s where advisors come in because a recent Vanguard study indicates women may be too dependent on cash.
“When it comes to finances, more than 70% of women say they feel confident about saving money—yet nearly half of respondents hold savings that may not be keeping pace with inflation. Forty-six percent save in low-yield accounts that earn less than 3%,” according to Vanguard.
That percentage of women with the bulk of their savings in cash is even more concerning when considering yields on cash instruments are falling. This speaks to the financial education gap that often confounds some women. Said another way, at a high percentage, women are interested in investing and leveraging assets such as stocks and real estate to build wealth, but they don’t know where to start. Advisors are forces for good in altering that situation. There are other encouraging points for advisors and female clients to consider.
“The good news is that identifying this disconnect creates opportunity to decide if you want to change course by taking stock of where you are saving to ensure you’re earning the interest you deserve,” notes Sonia Fraher, Head of Cash Management at Vanguard. “This is especially important since savings, compounded over time, can have a meaningful impact on women’s overall wealth and financial well-being.”
Advisors Matter
Trust and feelings of safety matter for all clients, but that’s amplified for women, particularly those wanting to move out of cash into investments that bear more fruit.
“Women noted that a trusted recommendation (35%), more available education (30%), and guidance from a certified professional (29%) would make them feel more confident about transitioning to a high-yield savings option,” notes Vanguard.
Advisors should consider demographics. Gen Z women, perhaps owing to relative youth, are the most open to changing their savings strategies among the various age groups. Mothers (83% compared to 70% of all women) are also highly amenable to altering their approaches to saving “if they were to receive additional education about all available options.”
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