Financial planning Putting cash to work should remain a strategic priority for investors

Government and investment grade bonds, diversified fixed income exposure, and equity income strategies can all play a role in sustaining portfolio income.

The Fed has signaled a more gradual pace of policy easing for 2025.

• The Federal Reserve cut interest rates by 100 basis points in 2024.
• However, its December projections imply only 50bps of rate cuts in 2025, down from expectations for 100bps previously.
• Elsewhere, the larger-than-expected 50bps rate cut in Switzerland in December means we only expect a further 25bps of cuts from the Swiss National Bank in 2025.

But the global rate-cutting cycle still has further to go.

• We expect the Fed to cut rates by 25bps in both June and September.
• We see potential for swifter rate cuts in the Eurozone, where we forecast 100bps in 2025. We also expect a further 100bps of cuts from the Bank of England.
• Cash rates could fall more sharply in the event of surprise weakness in economic data.

So we believe putting cash to work should remain a strategic priority for investors.

• We recommend that investors deploy excess cash, money-market holdings, and expiring fixed-term deposits into assets that can offer more durable income.
• Absolute fixed income yields remain attractive, in our view, and can be locked in.
• Government and investment grade bonds, diversified fixed income, and equity income strategies can help investors generate sustainable income.

Did you know?

• Cash’s long-term underperformance compared to other asset classes is a structural phenomenon. Stocks have beaten cash in 86% and 100% of all 10- and 20-year holding periods, respectively, and by more than 200x overall since 1926.
• A bond ladder is a portfolio strategy involving the purchase of bonds with staggered maturities, allowing investors to receive a steady stream of income as bonds mature at different intervals.
• Equity income strategies include dividend, covered call, and structured investment strategies. Such strategies may be particularly appealing in a falling-rate environment as they can provide a steady income stream while potentially enhancing returns.

Investment view
While the Fed may take a more gradual approach to policy easing in 2025, we believe the global rate-cutting cycle is likely to continue. For investors, we believe this reinforces the case for redeploying cash, money-market holdings, and fixed-term deposits into other assets that can provide more durable income. A combination of government and investment grade bonds, diversified fixed income, and equity income strategies can help investors sustain portfolio income.

Original report: How should investors put cash to work?, 27 January 2025.

Disclaimer