Citi Wealth warns investors to move out of excess cash because of hot inflation

Investors should scale back their cash holdings amid elevated inflation, Citi Wealth Investments warned. Recent price data has come in hot. The consumer price index rose at an annual rate of 4.2% in May, the highest in three years, and the personal consumption expenditures price index for May, the Federal Reserve's favorite gauge of inflation, reached a seasonally adjusted 4.1% annual rate, its highest since April 2023. Those inflation rates are generally above the annual percentage yield investors have been getting from cash assets, such as money market funds and high-yield savings. For instance, the annualized seven-day yield on the Crane 100 list of the largest taxable money funds stood 3.46%, as of Sunday, making the real, inflation-adjusted return negative. Still, Americans are currently holding cash at levels far above historical averages, said Olaolu Aganga, head of portfolio construction and analytics at Citi Wealth. For instance, some $7.9 trillion is sitting in money market funds, according to the Investment Company Institute . Too much cash can erode a portfolio's purchasing power over time, Aganga pointed out. "The numbers today really indicate that clients should be decreasing the excess cash outside of what they really, really need," she said. "On a real yield-adjusted basis — so factoring in inflation — they're not getting that much." Putting excess cash to work Holding some cash is important, but it should be treated purposely, Aganga said. …