For all the talk about cash coming into the market, JPMorgan believes the money, for the most part, is staying there. Liquidity flowed into money market funds as interest rates rose. While it hasn’t reached its peak, the Crane 100 Index of the 100 largest taxable money market funds currently has a seven-day yield of 5.17%. Meanwhile, according to the Investment Company Institute (ICI), $41.7 billion was transferred to money market funds (MFMs) in the week ending Wednesday alone, bringing their total assets to a record high of $6 trillion. This year’s inflows come at a time when money market funds have historically experienced seasonal outflows. This “challenges the notion that the $6 trillion of liquidity sitting in MMFs will rotate into alternative assets such as fixed income and/or equities,” JPMorgan analyst Teresa Ho wrote in a note last week. Nor does Ho expect that income-oriented investors will shift money into longer-dated bonds once the Federal Reserve begins cutting rates later this year. Ho calculates that about $5.5 trillion in assets sitting in money market funds represents critical liquidity for companies and cash savings for retail investors. “The money is not there to chase returns or returns. It is truly money that is managed by companies for everyday purchases. Regardless of what other markets are doing, that money is here to stay,” Ho said in an interview on CNBC. Indeed, according to ICI, the most recent boost to money market funds has come from institutional investors. Institutional money market fund assets increased by $33.06 billion to $3.65 trillion, while retail money market funds increased by $8.62 billion to $2.35 trillion dollars, the organization found. “Historically, institutional investors have put money into money market funds when the Fed peaks in a tightening cycle, as Chairman Powell has indicated [Wednesday]”Shelly Antoniewicz, deputy chief economist at ICI, said in a note. That’s because yields on money market funds lag the Fed’s moves. Therefore, yields will remain higher for a little longer after a rate cut while Treasury bonds and commercial paper yields The central bank kept rates stable after Wednesday’s meeting and indicated it is not yet ready to start lowering rates, Fed Chair Jerome Powell said that cuts are unlikely to occur at the next Fed meeting in March. When will investors deploy some cash? By Ho’s calculations, there are about $500 billion sitting in money market funds that are susceptible to the “flight risk,” particularly from retail investors. Yet she’s not even counting on that money going away anytime soon. “We’re not really going to see the rate curve invert to the point where it actually has a positive slope until at the end of this year, if the Fed cuts in the summer,” he said, referring to the fact that short-term yields today are higher than long-term yields. “That tells me that investors aren’t necessarily going to get out of the curve, given that the yield is lower right now, and they won’t see a higher yield until much later in the year.” Additionally, money market funds have not seen interest rates above 5% since 2007.” Psychologically, there’s that 5% level that people love,” he said. AllianceBernstein, however, advocates acting now. Historically, liquidity has been “flooded” into money markets and flowed into long-term debt when the Fed has eased monetary policy, senior investment strategist Monika Carlson wrote last week ahead of the Fed’s latest meeting She predicts that the potential increase in demand for bonds will be exceptionally large thanks to the trillions held in cash. “To avoid missing out on the potential returns this represents, we believe investors should aim to anticipate the move from cash to bonds,” Carlson said. “Historically, in the three months preceding the Fed’s first rate cut, the yield on 10-year U.S. Treasury bonds fell by an average of 90 basis points. That’s why past investors got the highest returns when they invested several months before the start of the easing cycle.” Bond yields move inversely to prices. Amy Arnott, portfolio strategist at Morningstar, believes investors will begin to withdraw some of their money from money markets and other short-term assets when they see short-term yields fall below the rate of inflation. Until then, “if you can get a decent return above inflation with virtually no risk, that basically explains why we’ve seen such a flow of assets into money market funds,” she said. Check your investment goals However, Arnott warned that it is dangerous to try to predict the right time to exit cash and enter the market. “Rather than trying to play that game, where people can often get burned, it’s better to look at your investment goals and your time horizon,” she said. If you’re saving for a purchase you plan to make in a couple of years, like a house or a new car, money market funds are a good place to earn extra income on your money, she said. If you’re looking to build long-term wealth for retirement in 10 years or more, you’re more likely to be better off with stocks, she advised. Fixed income is also an important part of a balanced portfolio, said Rob Williams, managing director of financial planning, retirement income and wealth management at the Charles Schwab Center for Financial Research. “If you’re overweight cash, we recommend that most investors have a plan to get back into the bond market for some of these income-generating investments,” he said. He suggests extending duration slightly and sticking to high-quality assets in Treasuries, municipal bonds or highly rated corporate bonds.