What’s Ahead for Cash and Bond Returns?

While cash is currently yielding around 4%, market expectations suggest three quarter-point rate cuts could occur in 2025, which aligns with our long-term return assumption for cash in the 3.5%–4% range. On the bonds side, the yield on a five-year Treasury is around 4%, which is roughly in line with our long-term expectation. Although keeping three to six months’ worth of living expenses in cash is generally recommended, it’s important to recognize that cash is not a high-performing asset over the long run. Historically, cash has underperformed both stocks and bonds, making it more suited for short-term needs and liquidity rather than long-term growth. Also, keep in mind that the Federal Reserve reducing interest rates mostly affects short-term rates and doesn’t necessarily correlate 1:1 with longer-term rates. The yield on a 30-year mortgage and a 10-year Treasury is higher now than before the Fed began cutting interest rates earlier this year.

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