We have rounded third and are headed for home, as October marks the start of the final quarter of 2025. The third quarter was again fruitful for investment markets, the S&P 500 gained 7.8%, the Bloomberg U.S. Aggregate Bond Index advanced 2.0% and emerging markets stocks continued their 2025 runup, growing by 10.1% in just the past three months.
Top on many investors’ minds as we opened the quarter is the country’s most recent federal government shutdown. On an annual basis, the federal government must pass a budget for the next fiscal year, which begins on October 1. While the government passed the “One Big Beautiful Bill Act” earlier this year that lays out tax and spending policies, a budget is needed to allocate the actual dollars to different departments and agencies. Failure to do so by the deadline means that the government might face a shutdown, resulting in a lapse in government services and employees being furloughed.
Sources: Clearnomics, Congressional Budget Office.
Fortunately, as the accompanying chart demonstrates, while political drama in Washington can create uncertainty, history shows that government shutdowns typically have limited impact on financial markets. Government shutdowns may dominate headlines, create challenges for federal workers, and disrupt important services, but they have historically had minimal impact on financial markets.
Another market-related event occurring in just the past few weeks is that the Federal Reserve cut interest rates by 0.25% for the first time in nine months, now targeting a base rate range of 4.00% to 4.25%. They indicated a desire to support a weakening job market as well as counteracting the impact of tariffs on the economy. Markets are pricing in additional interest rate reductions, which means the elevated rates on money market funds many have come to enjoy are likely to decline over the next several months—there is currently a record $7.3 trillion held in money market funds.
For investors who may hold more cash than is necessary or appropriate for their goals, now might be a good time to look elsewhere for their “excess cash.” The history of financial markets is clear when it comes to growing the value of hard-earned savings and beating inflation. As shown in the chart below, stocks and bonds have risen magnitudes more than inflation. Even though what used to cost $1 in 1926 now costs $18 today, stocks and bonds have risen many multiples more, creating true wealth for those who were positioned for these long trends. This is true despite periodic market pullbacks, financial crises, and recessions over the past century.
Sources: Clearnomics, Robert Shiller, Standard & Poor’s, BLS.
The bottom line? While cash serves important purposes, holding too much creates hidden costs. For long-term investors, maintaining an appropriate cash buffer while staying invested in long-term portfolios is still the best way to achieve financial goals.
As always, we encourage your feedback and questions on these topics or any others related to the success of your financial plan, email us at info@boyumwa.com or give us a call at 651-289-6444 if there are topics you would like to discuss.
This has been provided for informational purposes only, reflecting the current opinion of the author, which is subject to change without notice, as are statements of financial market trends, which are based on current market conditions.
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