THE WALL STREET JOURNAL
U.S. Investors Are Flush With Cash, and Happy to Keep It There
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Are You Flush With Cash?
The Wall Street Journal recently reported assets in money market funds are at record levels. Investors have about $7.7 trillion in these funds. The headline suggests Americans are “Flush With Cash.”
They also appear to be flush with stocks.
Money Market Funds: Bigger Than Ever
First, let’s look at money market funds. Here is a brief overview of these funds:
✅ Invest in short-term, high quality debt instruments like Treasury bills and commercial paper
✅ Designed to provide stability and liquidity, though they are not guaranteed or insured by the FDIC
✅ Returns generally fluctuate with short-term interest rates
The first chart shows the total assets in these funds from 1987 through the end of the 2nd quarter of 2025. Americans have never owned more money market funds than they do now.
Source: St. Louis Federal Reserve (FRED), Divvi Wealth Management
Over the last 4 decades, the only times when Americans have seemed reluctant to put more money in these funds was:
✅ Following the recession of the early 2000s,
✅ After the global financial crisis in 2008/2009, and
✅ During COVID-19
Short-term interest rates also happened to plummet in each of these three time periods, bringing the returns on these funds down with them.
Flush With Stocks
Now look at those same money market assets alongside assets held in stock investments. With the S&P 500 near all-time highs, it shouldn’t be a surprise to see Americans have never owned more equities than they do now.
Source: St. Louis Federal Reserve (FRED), Divvi Wealth Management
Finally, money market funds don’t seem to account for a significantly larger percentage of Americans’ overall financial assets than the historical norms.
Money market represents about 5.8% of total household financial assets, and the long-term median is 4.5%.
Source: St. Louis Federal Reserve (FRED), Divvi Wealth Management
It seems Americans may own more money market funds because, in the aggregate, household wealth is at record highs, not because of some impending doom.
When could Money Market Funds Make Sense?
All that said, here are several reasons owning money market funds could make sense. In each of these cases, return of capital should be more important than the return on capital:
Emergency savings
Life happens. A common rule of thumb for single income households is to keep at least six months of living expenses in an emergency fund, or three months of living expenses for dual income households.
Near-term spending needs
Planning on spending that money in the next 12-24 months? Short-term movements in stock prices and interest rates are very difficult to predict. A money market fund can be a great place to keep those dollars until they are needed.
Peace of mind
It may not be the optimal solution – taxes and inflation are likely to erode the value of those assets over time – but for those people who have “enough” – meaning they are unlikely to ever run out of money based on their asset level and spending habits – keeping more than three or six months of living expenses in money market funds may provide more peace of mind.
Dollar cost averaging into other growth assets
Again, this may not be the optimal solution compared to investing a lump sum all at once. But dollar cost averaging – or buying in regular intervals with pre-determined amounts of money – may help offset anxiety that can come from investing a large sum at one point in time. Some investors may choose to keep cash available for future investment opportunities. Regardless, having a plan – and sticking to it – can be important to avoid second-guessing.
Summary
Assets in money market funds are at record levels, but so are assets in stocks and other financial assets.
Why do Americans have so much money in cash? This surge in cash may be driven by higher interest rates and increased overall wealth, rather than fear or uncertainty.
Money market funds can play an important role in an investment plan. But if emergency needs and near-term expenses are already covered, and you need money to grow over the long-term, stocks have historically done a much better job of protecting purchasing power and growing wealth over time.
Aligning asset allocation with goals and risk tolerance can help investors determine how much of any investment is “too much.”
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