A Bank of America fund manager survey found cash levels were at 5.8 percent in October — the highest they've been since 2001. On Wednesday, the largest weekly outflow from equity funds in five years was reported by the Investment Company Institute — close to $15 billion.
Investors are worried — about bonds as the Fed moves closer to a rate hike, about the election, and about a bull market now in its eighth year and supported by a so-so economy. The nervousness has fueled an increase in cash holdings. Hedge fund billionaires, including David Tepper of Appaloosa Management, have commented on how much cash they're holding. But famed value manager Bill Miller of Legg Mason says he's holding no cash and stock values abound.
So whom does the retail investor trust? Simple answer: None of the above. The investor should trust — and know — themselves, and understand what "going to cash" should — and shouldn't — mean.
"Investors have lots to be nervous about," said Mitch Goldberg, president of investment advisory firm ClientFirst Strategy. "But then again, for as long as I've been in this business, there has always been something to be nervous about. ... What we're really talking about is risk tolerance and how one should react to that."
If nervousness about the market is the motivation to increase cash allocation, then it should be obvious which investments that extra cash should be pulled from: the highest-risk positions.
Here are five more basics about holding cash that, for investors, it pays to understand.