With cash yields set to fall as the Federal Reserve cuts interest rates, investors may want to consider putting some of that money to work elsewhere. Americans are still flooding into money market funds, despite the the Federal Reserve’s latest campaign to lower borrowing costs. Total assets in the cash-like funds reached a record $7.4 trillion in the week ended Wednesday, Oct. 22, according to the Investment Company Institute . How much money market funds pay follows the Fed’s monetary policy, which means the annual percentage yield (APY) is expected to drift lower as the central bank continues easing rates. The Fed meets on Tuesday and Wednesday and the market is pricing in nearly 97% odds that it lowers the federal funds rate by 25 basis points, or 0.25 percentage point, to a range of 3.75% to 4.00%, according to the CME FedWatch tool . The central bank is expected to cut again at its December meeting (there is no November meeting). While money market funds APY’s are down from the 5% they once enjoyed, they are still just below 4%. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds was 3.92%, as of Sunday. Philip Blancato, chief market strategist at wealth-management firm Osaic, believes there is good reason to start moving some funds out of cash instruments. “When we’re beating the rate of inflation with the money market, that makes for a great opportunity,” he said. “Now with that seemingly coming to an end — not quite there yet, but seemingly — there is an opportunity for folks to rethink their cash strategy.” Keep some money liquid With uncertainty from the job market and the government shutdown, it’s important to keep at least six months of cash available for an emergency or unexpected expenses, said Chelsea Ransom-Cooper , co-founder and the chief financial planning officer at Zenith Wealth Partners in Philadelphia. She suggests keeping those funds in a high-yield savings account. If the money exceeds the Federal Deposit Insurance Corporation’s insurance limit of $250,000, then she would start to explore money market funds. They aren’t insured by the FDIC but may be protected by the Securities Investor Protection Corporation (SIPC), up to $500,000. Certified financial planner Barry Glassman , founder and president of Glassman Wealth Services in North Bethesda, Maryland, considers cash an asset class — and therefore an important port of a portfolio. “[Cash is] still paying a somewhat attractive rate of interest for safety, low volatility, low correlation and income,” said Glassman, a member of the CNBC Financial Advisor Council . “It can be used for a safety net or it can be used as a parking place for opportunity in the future.” Ladder CDs Any excess cash beyond the six months of savings should move elsewhere, said Ransom-Cooper, also a member of the CNBC Financial Advisor Council. Risk-averse investors can park the funds in certificates of deposit, she suggests. Laddering — or buying CDs of different maturities from 3 months to 14 months — is a great way to maximize yield, she said. “It gives them a bit of a hedge in case they need the cash sooner rather than later, so they’re not waiting for their money at one specific date, but they have a few different options on when they could pull the cash out,” she explained. Rates remain solid. Only about half of the online banks BTIG tracks have cut CD rates since the Fed lowered rates in September, the Wall Street investment bank said in a note Sunday. “This does imply, to us, that online banks have already front-run Fed Funds Rate cuts through the year,” analyst Vincent Caintic wrote. Bonds for income Blancato suggests looking beyond money markets and CDs for income. “An actively-managed portfolio of cash is very effective here. By that I mean you want to have a combination of short duration, high quality investments,” he said. First, he suggests a diversified mix of high-quality bonds in an exchange-traded fund that has a duration of about two years. Blancato would pair that with a one- to three year Treasury ETF. “Between the two, you could probably keep your duration under two years, and your credit quality between around triple B to single A, and still have yields that are going to be similar to where we are today,” he said. Glassman suggests diversifying risk with Treasurys, corporate bonds and perhaps a credit fund, like a bank loan or high-yield bond fund. He would also spread out maturities, going out to a year to five years, especially if interest rates start to drop. One way to do that is through a bond ladder, which staggers individual bonds of different maturities. “Having the discipline of a bond ladder takes away the guessing of where interest rates are headed over the next year,” he said. He also likes core bond funds, but suggests looking at the average duration or average maturity. Leg into stocks Those with a higher risk tolerance should keep the cash in a money market fund within their investment account so they can dollar-cost average into the stock market when opportunities arise, said Ransom-Cooper, whose clients’ average age is 42. “Our clients are relatively younger, so when they see downturns in the market, that’s typically a buying opportunity for them,” she said. “They just want to make sure that they have that cash readily available, but also making sure it’s keeping up with inflation too, which is why we typically put it in that money market for them as they wait to enter the market.” Glassman suggests lessening exposure to Magnificent 7 stocks that have pushed the market higher. Instead, he’d choose a discipline or index that has more attractive valuations tied to it, like the Schwab Fundamental U.S. Large Company ETF ( FNDX ) or an equal-weighted S & P 500 fund . (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
