Skyler O. from Grand Forks, ND asks: Hi Mitch, Happy New Year! I was curious if you had a breakdown of where investors moved money in 2023. I enjoy assessments of ‘inflows’ and ‘outflows’ for the year, and think there’s a lot of good info to gather from them. Thank you.
Mitch’s Response:
Thank you for writing, Skyler, and Happy New Year to you as well.
That’s a great question, and I agree with your general take about gaining good insights from analyzing money flows over the course of a year.
Let’s start with the stock market. The S&P 500 finished the year up +24%, with a very solid showing in Q4. Investors got a lot more enthusiastic about the market late in the year, with the SPDR S&P 500 ETF Trust showing $40+ billion of inflows in December alone. That was the biggest month of inflows in 30 years.1
The problem many investors faced in 2023, however, was being too cautious early in the year. There were near-unanimous calls for recession, and the regional banking crisis had many worried about the possibility of a sustained rally. The first six months saw outflows from equity mutual funds and ETFs, the opposite of what investors should have been doing.
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Money market funds are also worth mentioning here. With annual rates of return hovering in the 5% range, many investors engaged in the ‘dash for cash.’ By year-end, assets in money market funds surged to over $6 trillion, a new record. As seen from the chart below, 2023 was a big year for inflows, and Americans did well – investors in money market funds collected $300 billion in interest income, which is more than the previous ten years combined.
Money Market Funds, Year-over-Year Change (in Millions of Dollars)
One important note to consider here is that with $6+ trillion in money market funds, there’s a good argument that Americans have plenty of cash not only to spend, but also to invest. If sentiment continues to shift positive as inflation falls and an economic ‘soft landing’ feels more likely, some of this cash could very well move to equity markets or be spent in the economy – both positives.
A final point to make for inflows is for Treasuries and certificates of deposit, i.e., risk-free securities. In 2023, the purchases of both were at their highest levels since 2015, and taxable bond funds also attracted about $147 billion in inflows. In short, investors put their money in many different places last year, with positive returns relatively easy to come by.
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