Shrinking cash balances provide latest evidence of investor euphoria

Custodians report cash is at record-low levels

Jan 24, 2018 @ 3:18 pm

By Jeff Benjamin

There's nothing quite like record highs in the stock market combined with historic lows in interest rates to get investors off the sidelines, and that's exactly what the major custodians are seeing these days.

During Tuesday morning's earnings call with industry analysts, TD Ameritrade President and CEO Tim Hockey said allocations to cash as a percentage of total client assets are at record-low levels.

While the cash total is up slightly from prior quarters at approximately $150 billion, the 12.7% of total client assets that represents is a new low for TD.

"This low level of client cash we've never seen," Mr. Hockey said.

Asked about the driving forces behind what typically symbolizes investor bullishness, he said, "It certainly feels like this bull market is long in the tooth, but there doesn't seem to be a catalyst for change."

TD Ameritrade is not alone in seeing shrinking cash balances as investors continue to pile into a stock market that has gained new momentum since the November 2016 election of Donald J. Trump.

At Fidelity Investments, retail brokerage customers reduced their average cash allocations to 16.07% at the end of 2017, an 18% decrease from 18.89% a year earlier.

The picture is even more stark for 401(k) plan participants using Fidelity, whose cash holdings dropped 35% over the past year to an average of 1.7%, from 2.3% a year ago.

At Charles Schwab & Co., cash as a percentage of client assets is also at a historic low of 10.8%, which compares to 12.5% a year ago.

For perspective, consider that at the March 2009 market bottom in the wake of the 2008 financial crisis, Schwab measured cash as a percentage of total client assets at 23.4%.

Financial professionals view the lighter cash allocations as a typical pattern during extended bull market cycles.

Investor confidence is riding the wave of the Dow Jones Industrial Average's 31% gain since President Trump's inauguration last January, marking the best first 12 months for a president since Franklin D. Roosevelt enjoyed a 96.5% first-year run in 1934.

That momentum is being carried forward by the president's tax-reform package, as well as a strong start to earnings season, which is expected to produce a 14% to 16% year-over-year increase in S&P 500 earnings.

Joshua Pace, president and chief executive of the custodian , said advisers on his platform tend to be more tactical and typically move in and out of cash throughout market cycles.

However, he said, lower cash levels "makes a ton of sense because this has been such a boring bull market; going up a half a percent every day."

With that in mind, Mr. Pace added, some financial advisers might feel compelled to jump on the bandwagon of increased market exposure for fear of lagging the market's returns.

"If you're an adviser who is leaving too much on the sideline, you're going to underperform," he said. "But at the same time, if you think the markets are overheated, you need to keep your finger on the trigger with the 2008 downturn in mind."

David Demming, president of Demming Financial Services Corp., said his preference has been to become more conservative as the stock market continues pushing to new highs on an almost daily basis.

"Our cash equivalent allocations have been steadily increasing," he said. "And we're bringing down some of the portfolio risk by using shorter-duration bonds."

0
Comments

What do you think?

View comments

Recommended for you

Managing editor Christina Nelson and senior columnist Mark Schoeff discuss why title reform won't be as "simple and elegant" as some observers hope.

Video Spotlight

Recommended Video

Channels

Latest news & opinion

UBS shrinks recruiting costs in 2017, boosts adviser pay

Both trends reflect the firm's shift away from recruiting in favor of increasing the compensation of existing brokers.

Wells Fargo Advisors now under investigation by Galvin

Massachusetts securities regulator cites DOL fiduciary rule when discussing probe that will focus on investors moved into higher-fee accounts, 401(k) rollovers.

Tax law: How to get the pass-through deduction by reducing taxable income

Advisers are only eligible for the full 20% deduction if their income is less than $157,000 for singles and $315,000 for married couples.

How to design a 401(k) plan that's lawsuit-proof

High fees are a red flag, but prudence is the ultimate key to defeating a claim, according to advisers and attorneys.

Why Amazon is moving into finance, and what it means for advisers

While the company is only exploring a banking venture for now, some experts believe it is inevitable that Amazon will eventually turn its attention to financial advice of some sort.

X

Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting arjuna-design.com? It'll help us continue to serve you.

Yes, show me how to whitelist arjuna-design.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Last News

mutual funds vs variable annuities life insurance annuity taxable vanguard index funds etf irs tax form 8606 2015 contribution limits hsa how to avoid 10 penalty on 401k withdrawal retirement calculators for married couples cfp exam blackrock us opportunities portfolio financial advisor salary nyc how much can you put in roth ira american beacon large cap value fund collecting social security while still working cashing in life insurance policy before death prudential highest daily lifetime 6 plus sei us large company equity fund national institute of certified estate planners gerber life college plan vs 529 goldman sachs high yield bond fund social security benefits for widows questions crisis action planning cap ends when does life insurance cover accidental overdose t rowe price equity income trust inheriting an ira from a spouse what does cobra stand for in healthcare vanguard money market mutual fund t206 baseball card values us switzerland tax treaty tiaa cref lifecycle 2040 how much is a 1943 copper penny worth t rowe retirement 2040 charles schwab reviews complaints edward jones assets under management college advantage ohio 529