Nearly $6 trillion is sitting in money market funds. Here's where that cash can go next

Published Thu, Dec 14 20231:01 PM ESTUpdated Thu, Dec 14 20234:32 PM EST

Money market funds were a hot item this year, but it may be time to think about shifting some of that cash into other investments. Investors flooded into the funds, bringing the total assets to $5.89 trillion for the week ending Dec. 13, according to the Investment Company Institute. That's up from $4.8 trillion at the end of January, per the ICI. Their popularity is no surprise given that yields have moved higher all year and are now topping 5%. The Crane 100 Money Fund Index currently has an annualized 7-day yield of 5.19%. It was 4.05% on Dec. 31, 2022, and 0.17% on Dec. 31, 2021, according to Crane Data. Yet, if rates go down next year, as expected, the yields in short-term instruments such as money market funds and high-yield savings accounts will follow suit. On Wednesday, the Federal Reserve indicated the possibility of three rate cuts next year . One place cash can move into is dividend-paying stocks, said Josh Brown, co-founder and CEO of Ritholtz Wealth Management. VIG YTD mountain Vanguard Dividend Appreciation Index Fund ETF That can mean moving it to exchange-traded funds such as the Vanguard Dividend Appreciation Index Fund ETF , which hit a 52-week high Thursday, and the ProShares S & P 500 Dividend Aristocrats ETF . The former has seen $547.5 million flow into the fund in the past month, while the latter saw $72.7 million in inflows, according to FactSet. "This is where the money is flowing right now because everybody understands this: You can buy stocks without buying the [magnificent] 7 stocks and that's the trade right now," he said in an interview with "Closing Bell" on Wednesday. "That trade carries us through." NOBL YTD mountain ProShares S & P 500 Dividend Aristocrats ETF Last month, Wolfe Research said it was time to get into dividend aristocrats , which are stocks that have increased their dividends for at least 25 years and includes McDonald's , Clorox , Coca-Cola and Exxon Mobil . The firm also likes stocks with high dividend growth and free cash flow , such as Kroger , CVS Health and Qualcomm . Investors looking to move cash from money market funds and shorter-term Treasury notes can also look at extending duration in fixed income, said certified financial planner Barry Glassman, founder and president of Glassman Wealth Services. One of his firm's largest holdings is the Dodge & Cox Income Fund , which started 2023 at lower duration and has been extending duration as the Fed approached peak interest rates, he said. Glassman, a member of the CNBC Financial Advisor Council , also suggests high-yield bonds, which can yield more than 7%. "Even if we clip the coupon over the next two years and principal winds up the same, that will be an attractive total return," he said. However, they carry more risk and can be volatile, behaving more like equities. "If we see a soft landing where the economy continues to chug along at the same time interest rates come down, that should benefit high yield," Glassman said. If you are concerned about a recession, he would avoid high-yield debt.