American retail investors are sitting on roughly $3 trillion in money-market funds. A record. A money-market fund is basically a parking lot for cash that pays interest — currently about 3.49%, which is not nothing. And the money moves for no one, which is the problem — at least if you are the financial industry, standing outside the vault with a bouquet.
Advisers report the same conversation on repeat. They suggest putting some cash to work. The client says no. They suggest it again, with charts. The client says no, with feeling.
Blame 2022
The industry blames 2022. That was the year stocks and bonds fell together — the year the seatbelt failed along with the car. Once you have watched a “safe” bond fund drop double digits, cash stops looking lazy and starts looking like the only adult in the room.
One adviser tells of a retired airline pilot camped at an 85/15 mix, immovable. Another asks the question that haunts the whole business: how do you tell someone who is 65 to go all-in on stocks? You don’t, obviously. But somewhere between all-in and all-mattress is where the fight for $3 trillion is happening.
Here is what nobody says from the stage at the sales conference: the stubborn client is not being irrational. A money-market fund paying 3.49% has never once dropped 20% on a Tuesday. That is not a feeling. That is a memory doing its job.
The pitch parade
The pitches come in three flavors. First, bond ladders — bonds bought with staggered due dates, so something matures every year and you never have to sell at a bad moment. Second, municipal bonds — loans to towns and school districts, with tax breaks that sweeten the yield. Those two are the plain kind. Neither needs a professional to decode it. That is a feature.
The third flavor is the fast-growing one: buffer ETFs — funds you buy like a stock, which use options contracts to cushion your losses in exchange for capping your gains. Innovator’s August version caps gains at 8.37% and promises 100% downside protection before fees. Translation: the market can’t hurt you, and in exchange, it mostly can’t help you either.
Wall Street has a nickname for this stuff — “boomer candy.” Products engineered to taste like safety while still technically counting as stocks.
Goldman buys the store
The candy business is now serious money. Goldman Sachs (GS) is paying up to $2.25 billion for NEOS Investments, a $30 billion fund shop whose flagship fund, SPYI, pays out about 12% a year by selling options against the S&P 500. The whole category — funds that generate income from options — has swelled to $180 billion and is growing 70% a year.
And this is Goldman’s second trip to the register. It bought Innovator, the buffer-fund shop, earlier this year for roughly $2 billion. Add it up, and Goldman is suddenly America’s eighth-biggest manager of active ETFs — largely on the strength of products designed for people who are afraid of the stock market. Read that sentence twice.
| The pile, and what’s being pitched at it | Figure |
|---|---|
| Retail money-market cash | ~$3 trillion (record) |
| What that cash pays | ~3.49% |
| Innovator’s August buffer ETF | 8.37% cap / 100% downside protection |
| SPYI distribution | ~12% annualized |
| Derivative-income ETF market | $180B, growing 70%/yr |
| Goldman for NEOS | up to $2.25B ($30B in client assets) |
| Goldman for Innovator, earlier this year | ~$2B |
The growth rate is the tell. A category expanding 70% a year is not being discovered by savers. It is being sold to them. Nothing about that is illegal, immoral, or even unusual — but it does explain why your inbox suddenly cares so much about your peace of mind.
Always ask where a yield comes from. A money market pays 3.49% because that is what short-term interest rates pay. A fund paying 12% has not found interest rates the rest of us can’t see. It is selling options — which means selling away the upside of the stocks underneath. The payout is real. So is the ceiling. In a strong market, the candy quietly eats your gains, and the cost never shows up as a line on the statement.
None of this makes the products evil. It makes them priced. And it makes the record cash pile the most fought-over pile in finance.