Wealthy Investors Are Moving Their Money, and You Can Get Ahead of It

Here’s my #1 stock that stands to benefit... [TradeSmith Daily logo] [TradeSmith Daily logo] September 26, 2024 Wealthy Investors Are Moving Their Money, and You Can Get Ahead of It BY LUCAS DOWNEY, CONTRIBUTING EDITOR, TRADESMITH DAILY Let’s take a short trip back to early 2022. The Federal Reserve has just launched a rate hiking cycle, and there’s easy money for the taking. As rates soared, money market funds became more attractive the more they paid – eventually reaching 5%. I imagine financial advisors pounding the table and leaving voicemails such as, “Hey, Mrs. Smith, let’s shift some of your assets towards money markets, NOW.” The call to action was met. A mile-high wave of money was set into motion. Over $1 trillion poured into money-market assets over a two-year period, with the result that well north of $6 trillion has been parked there: [chart]( Now, back to 2024. Those red-hot yields are now on the downturn. The income heist has finally arrived. The cash bubble is bursting… and wealthy households face a looming dilemma: where to park assets instead of money markets, knowing those income streams are under attack. Just like those FAs in 2022, we’ll pound the table on the asset class set to soar. The 1% Cash Bubble Just Burst While we’ve discussed money markets before in TradeSmith Daily, today we’ll take this a step further by breaking down money market assets by household wealth percentile. This data actually blew me away. SPONSORED AD [Here’s the Day the Next Crash will Happen…]( [image]( Backtests show it would’ve signaled every major market crash and rally of the past 20 years. It most recently signaled the Covid-19 Crash and 2020 Tech Crash. [Here’s what its tools indicate is about to happen…]( While I realized high earners would understandably own most of the money market assets, the magnitude of asset growth from the well-to-do opened my eyes to who we’re actually talking about! For this illustration, I bucketed money-market assets in four groups: - The top 1% wealth percentile - 90th – 99th wealth percentile - 50th – 90th percentile - And the bottom 50th percentile Each of these wealth percentiles vary depending on which state you live in. But, for the top 1%, you can figure incomes are at least $500,000 to make the cut. The top 10% are typically six-figure earners and above, on average. As you can imagine, the upper crust of society was responsible for most of the ramp in money-market asset growth. Through Q2 2024, the top 1% of households held 35.3% of all money-market assets. The 90th-99th percentile controlled 41.1% of assets: [chart]( Tallied together, the top 10% of households made up over three-quarters of the asset pie. Even more incredible is the sheer growth in assets from Q1 2022 – Q2 2024. The top 10% of households saw money-market assets grow just over $1 trillion… making up 80% of the total asset growth. The upper middle households, 50th – 90th percentiles, saw money-market assets climb by nearly $240 billion… representing just over 18% of the asset growth. The bottom 50th percentile saw only 1% of asset growth. I have three important takeaways from this data: - First, high earners have done relatively well during the last few years of high inflation. - But given they have benefited from the rise in rates, it tracks that they’ll be the very ones to feel the pinch as rates fall and money-market income streams shrink. - And on the flipside, if the lower levels of incomes haven’t participated in relative upside as rates have climbed, is it a far stretch to assume they are in good position to benefit as rates fall? After all, falling rates does help debt loads and costs to service those payments. Net/net, I’m going to wager that life will feel a bit easier this time next year for this group… and that’s a great thing! Additionally, if you’d like to hear my colleague Jason Bodner and I chat in depth on this topic and breakdown this data, [click here]( As for the second point… I’m imagining a lot of calls from FAs to their clients giving them options on where to park these soon-to-be lackluster income streams. I’m sure they’ll offer up municipal bonds and some corporate bonds. But, last I checked, Warren Buffett didn’t get rich off munis! Nope. He it was because he bought great stocks with growing dividends! Yes, the greatest investor of all time constantly teaches us the power of compounding. With the S&P 500 offering a paltry 1.32% average yield, you need to dive below the surface to uncover top dividend areas. Below shows how energy stocks are tops, with a forward yield of 3.46%. Real estate and utilities stocks pay 3.26% and 2.98%, respectively. Consumer staples is the only other sector offering yields above 2%: [chart]( My bet is these four groups will benefit from the eventual exit out of money-market funds. Ways to play these themes could be through the sector ETFs like the Energy Select Sector SPDR ETF (XLE) or the iShares U.S. Real Estate ETF (IYR). But, if you’re like me, you’ll want to do better and target only the best stocks within those groups. One Great Stock for the 1% Wealth Transfer This is where having evidence-rich data at your fingertips counts: what TradeSmith is all about. Let’s look at S&P Global (SPGI), a company [I profiled last December]( as a stock to buy for the bull market. If you don’t know S&P Global, they are a financial ratings and benchmark firm. When investors quote the S&P – they are talking about the index owned by S&P Global. Below you can see how the stock has absolutely crushed the S&P 500 index over the last six months: [chart]( And I’m not surprised. With a 0.7% yield, you may assume this name doesn’t qualify as a great dividend play… but it does. SPGI is a super high-quality company with some of the best metrics around. I’m constantly reviewing different ways to analyze a company, and the below snapshot dives into why this name should be on your radar. It sports a decent payout ratio of just 44%, one-year dividend growth of 8.4%, and five-year dividend growth of 64.3%. But it’s the grade that seals the deal for me. It gets an A for its Dividend Safety Rating (DSR) – a new metric we’ve created – along with a Quantum Score of 75 and a Business Quality Score (BQS) of 92: [chart]( And when you view the Quantum Score in totality, it tells you SPGI gets a check for its fundamentals… as does its technicals: [chart]( As I wrap up, the bottom line is simple. Expect the bursting cash bubble to send capital surging into income assets, potentially trillions of dollars. I believe dividend growth is the best way to play this looming dilemma for wealthy households. By now you should be imagining the calls FAs are making to their clients. I know I am! But the better call is the one in front of you today. Focus on outstanding businesses (the Fundamental Score) with healthy dividend growth. Especially the stocks with significant momentum to the upside (Technical Score). The annual boost to the payout is much more important than sky-high unstainable yields. TradeSmith can help you spot the great opportunities. Consider owning SPGI on a pullback. Or better yet, consider joining our services like [Quantum Edge Pro]( and you’ll be in line for our next leadership-quality stock… my bet is it’ll be positioned well for the coming cash-bubble exodus. Regards, Lucas Downey Contributing Editor, TradeSmith Daily Get Instant Access Click to read these free reports and automatically sign up for research throughout the week. 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