The recent rate cut from the Federal Reserve will likely not be the last this year, which means investors need to start assessing their cash allocations, according to UBS. There is $7.3 trillion in cash sitting in money market funds, close to a record, according to the Investment Company Institute . But the solid rates people have been enjoying in money markets and other cash-equivalent investments will resume their decline now that the Fed is easing policy again. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds was 4.09%, as of Thursday. In addition to lowering the federal funds rate by 25 basis points, or 0.25 percentage point, the Fed on Wednesday telegraphed the potential for two more rate cuts this year and another in 2026. If there labor market weakness proves even more severe, the central bank could even cut more, UBS said in a note Thursday. As a result, for investors, “the imperative to put cash to work is increasing,” wrote the authors, headed by Ulrike Hoffmann-Burchardi, global head of equities at UBS Financial Services. That’s because history shows that cash has underperformed a strategy of phasing into diversified portfolios of U.S. stocks and bonds about 74% of the time based on rolling, one-year time horizons since 1945, a UBS analysis found. It underperforms 83% of the time on five-year horizons, the bank said. UBS has a three-pronged approach to managing your cash. Organize liquidity needs Even your cash needs should be thoughtfully allocated and not all lumped into one savings account or money market fund. Money needed for up to one year should be readily available and not take any interest rate risk, Hoffmann-Burchardi said. That might come from a mix of savings accounts, money market funds or certificates of deposit, she said. Just be aware that if you lock up money in a CD, you could be penalized for any early withdrawal prior to maturity. A second step aimed at debt instruments maturing in one-to-three years should balance both yield and flexibility, she said. “A bond ladder —a portfolio of individual bonds or fixed maturity bond funds with staggered maturities—can provide predictable cash flows and manage interest rate risk,” Hoffmann-Burchardi wrote. Lastly, investment cash targeted for needs as far away as five years can focus on optimizing returns in exchange for some price fluctuation and lower liquidity, she noted. In this case, medium-term government or investment-grade bonds make sense, as does a diversified multi-sector bond investment approach, she said. Global high-quality bonds might prove one attractive niche. They’ve outperformed one- to three-month Treasury bills in the 12- to 24- month period after the peak in rates, rising between 2.7% and 4.1%, she noted. Phase into stocks Beyond making sure your portfolio is balanced, there are other specific opportunities to put excess cash to work in the markets, UBS said. Those under-invested in equities and looking to manage timing risks should consider phasing into stocks during market dips, Hoffmann-Burchardi said. “We believe lower interest rates, robust earnings growth, and AI tailwinds will support further potential gains for global equities over the next year,” she wrote. Hoffmann-Burchardi believes investors should focus on artificial intelligence, power and resources’ themes to outperform the broader market over the longer term. Gold and alternative investments can also provide portfolio diversification, with the precious metal expected to benefit from the weaker dollar, lower real interest rates and investor concerns about rising debt levels, she said. Find income replacement Within U.S. equities, there are selective opportunities in stocks with attractive dividends, Hoffmann-Burchardi said. UBS keeps a Global Quality Dividend Payers Index , made up of stocks that not only pay income but are also high quality in terms of their levels of debt and consistency of profits, among other measures. The bank uses quantitative models and fundamental analysis to make that determination. Two stocks in the index are Johnson & Johnson , whose dividend yields 2.99%, and Valero Energy, which pays a 2.76% yield. In fixed income, Leslie Falconio, head of taxable fixed-income strategy at UBS Financial Services, finds agency mortgage-backed securities (MBS) attractive. Agency MBS currently yield about 5%, are high quality and have abundant liquidity, she said in a separate report on Wednesday. “While agency MBS spreads have tightened, they are still wide of long-term averages and still attractive versus [investment-grade] corporates,” she wrote. Falconio also likes commercial MBS, which she said are also attractive compared to corporate bonds. She particularly prefers AAA-rated CMBS. “The dovish outlook for the Fed is a strong tailwind for the sector,” she said. “We believe there is further outperformance on the horizon.” (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
