Cash Increases During Market Pullbacks
But safety may come at a cost
The blue line in the chart below shows the average yield of money market accounts since 2000. As of December 31, 2018, it’s hovering at 0.8%. Not great, but safe. At least it looks that way until we account for inflation, which is represented by the green line.
Some investors may be surprised to learn that by holding onto their cash, they’re actually slowly eroding their purchasing power. If you’re not at least meeting inflation, you’re falling behind.
Money Market Accounts’ Average Yield Before and after Inflation
January 1, 2000 – December 31, 2018
These charts are for illustrative purposes only and do not reflect the performance of any Franklin Templeton fund.
Sources: Canadian investors moving to cash during market pullbacks: Strategic Insight Inc.; Canadian Money Market Fund Yields: Morningstar Research Inc.; Canadian Inflation Rate: Statistics Canada.