Editor\u2019s Note: The below was written prior to the current government shutdown.\u00a0 The US government shut down on October 1, 2025 after failed negotiations. Republicans wanted a \u201cclean continuing resolution\u201d until November 21, 2025; while Democrats sought compromises. Shutdowns are historically brief with little market impact, however, repeated shutdowns do erode global investor confidence. Short-term volatility is possible given deep political divisions, but it\u2019s important to stay anchored to your long-term strategy. This shut down also could disrupt economic data releases which in turn could impact Federal Reserve decisions, which brings us to our regularly scheduled content.<\/p>\n
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When I was in college, I landed an internship at Scottrade, the discount online broker that was later acquired by TD Ameritrade in 2017. One of their perks was an employee savings account paying 5% on up to $5,000. At the time, rates were near zero, so I quickly moved my savings into that account. Around the same time, Facebook went public. And no, I didn\u2019t buy shares since most of my cash was tied up earning that 5%.<\/p>\n
For the past three years, money market funds and Certificates of Deposit (CDs) have been yielding 4-5% after the Federal Reserve began raising rates in 2022 to fight inflation. Investors piled in, and money market balances hit a record $7 trillion in the first half of 2025. It\u2019s been an easy trade: virtually risk-free income in a world that hadn\u2019t seen such yields since before the 2008 financial crisis.<\/p>\n
But here\u2019s the thing \u2014 while cash was earning that steady 4-5%, global equity markets delivered roughly 20% annualized returns over the same time period. The strong returns came despite two major geopolitical conflicts, persistent inflation, restrictive monetary policy, a banking crisis, the expansion of tariffs, and even election uncertainty. In other words, the world was far from calm, yet stocks surged. That\u2019s the trap of \u201csafe\u201d returns: when something looks too good to pass up, it\u2019s easy to forget about opportunity cost.\u00a0<\/p>\n
Despite higher interest rates and market volatility in the spring of this year, there has been a burst of activity in the IPO market. Year-to-date, newly-public companies have raised $32 billion, and bankers anticipate more deals on the horizon. I\u2019m not suggesting you dump your cash into the next shiny tech IPO, but I am suggesting that the sweet spot for long-term investors usually lies somewhere between a savings account and a hot IPO.\u00a0<\/p>\n
\u200dThat\u2019s where thoughtful asset allocation comes in.<\/strong><\/p>\n The Fed cut interest rates by 25 basis points in September, with more cuts expected this year and in 2026. Unlike mortgage rates, short-term instruments like savings accounts, CDs, and money market funds move almost in lockstep with the Fed. Those attractive 4-5% yields could be at risk. Historically, rate cutting cycles have lasted anywhere from 3 to 40 months, with the current one beginning in September 2024. Unlike the emergency cut rates seen during the pandemic, the Fed is now fine-tuning monetary policy to balance its dual mandate of maintaining price stability and promoting maximum employment. Under current economic conditions, it\u2019s unlikely that rates will drop to 0%, but it\u2019s very possible they could drop to a level where yield on cash is barely keeping up with inflation.\u00a0\u00a0\u00a0<\/p>\n
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