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The worst thing clients can do in response to interest rate cuts is make drastic asset allocation changes, advisors say. By Ben Mattlin

“ For savers, particularly those with a significant amount of savings allocated towards cash and cash-like products, it’ s likely that yields on those products will decline,” says George Bory, the chief investment strategist for fixed income at Allspring Global Investments in New York.

In September, for the first time all year, the Federal Reserve lowered the benchmark interest rate— and indicated the possibility of further reductions before 2025’ s end.

Fixed-income investors may already have seen their yields drop. The yields on bank savings accounts and other cash substitutes tend to be the first assets that respond to changes in prevailing interest rates. In fact, some cash yields started tightening before the Fed’ s move, just in anticipation of the cuts.

To minimize the risk of falling yields, Bory recommends a degree of caution about how much clients allocate to cash in this environment. To fulfill their need for short-term, low-risk liquidity, he uses a mix of cash accounts, money-market funds and short-duration debt investments( whose maturities are in one to five years) as well as ultra-short duration securities( maturing in less than a year).

“ By taking a multiproduct approach, investors should be able to meet their liquidity needs, protect capital against permanent impairment and preserve income for an extended period of time,” he says.

Some risk-averse clients might warm to certificates of deposit( CDs), which guarantee a rate of return for a period of time and are backed by the Federal Deposit Insurance Corp. for up to $ 250,000. Such vehicles come with an opportunity cost, though, since the funds are tied up and can’ t be shifted to investments that might appreciate more.

“ It does not make sense to lock up too much of your cash in a CD, [ but ] a retiree with predictable expenses could consider buying a two-year CD to lock in rates at 4 % and get peace of mind, as long as she doesn’ t mind tying up that money,” says Alvin Carlos of District Capital Management in Washington, D. C.

Besides being illiquid, CDs are subject to“ reinvestment risk”— meaning it’ s possible their earnings will automatically reinvest at a lower rate of return than the original CD had.

For a higher rate of return, some clients prefer money-market funds. These are investment accounts rather than bank accounts, and aren’ t FDIC insured. Still, their net asset value is generally stable at $ 1 per share, which makes them less risky than bonds since there is little to no pricing risk. But the NAV can’ t increase either( the way stocks and bonds can).

Money-market yields are more volatile than those of bonds or CDs, though— since they are tied to( and fluctuate with) interest rates. So clients who own these vehi-

NOVEMBER 2025 | FINANCIAL ADVISOR MAGAZINE | 49