Many investors hold a significant portion of their wealth in cash. While that may feel prudent, an overly defensive approach can deliver less income than needed, or desired. We believe there’s a strong argument for gradually reallocating some of that cash into high-quality investment grade (IG) corporate bonds. It’s a move that could unlock greater income potential and help insulate portfolios during periods of equity market drawdowns.
Consider a $10 million portfolio. With cash rates averaging 3.66% and US IG corporate bonds yielding 4.31% over the long term, the difference in potential returns quickly adds up. Over 3 years, choosing bonds over cash would generate more than $195,000 in additional income. Extend that to 5 years, and the gap grows to over $325,000. These are real gains that can make a difference to tangible wealth.
Investors should consider what those additional returns could fund: perhaps a deposit on a second home or school fees. Even a modest shift out of cash can achieve a significant difference in income. In our view, it’s something that warrants serious consideration.
Cash does have an important place in a portfolio, covering both day-to-day business needs and liquidity for planned capital expenditures. But when it comes to strategic liquidity—funds intended to be held for a year or longer—holding too much in cash can dilute returns, erode your wealth and slow progress towards long-term goals.
With that in mind, fixed income is the natural next step for investors moving out of cash. It offers steady income, potential for capital preservation, and a range of credit qualities to align with differing goals and risk tolerances. While government bonds are traditioally viewed as the first move out of cash, rising government debt since COVID has weakened their appeal. In contrast, corporate balance sheets have strengthened, potentially making high-quality corporate bonds a more compelling alternative.
When considering corporates, IG bonds can offer an appealing investment opportunity. Issued by companies with strong fundamentals, they offer and dependable income and yields that exceed cash. The macro backdrop is also supportive. GDP growth has been resilient, corporate earnings have improved, profit margins are elevated, and net leverage sits at or below historical norms.
Just a few years ago, cash yields were comparable to those of IG bonds. However, this alignment was short-lived. Since 2024, central banks have moved towards cutting interest rates. This has led to cash rates falling by around 1.75% in the US. As a result, cash yields have retreated, underperforming IG bond in recent times. Indeed, an allocation to IG bonds at any point over the last 3 years (and held for more than 1 year) would, on average, have delivered 2% more per year than cash, as shown in the chart below.
Looking ahead, we firmly expect IG bonds to continue outperforming cash. J.P. Morgan Asset Management’s Long-Term Capital Market Assumptions indicate that cash could generate average annual returns of 2.9% in USD over the coming decade.1 In contrast, IG bonds are projected to yield over 2% more than cash, with potential annual returns around 5.5% in USD 2.
For context, a $10 million investment, choosing US IG bonds over cash, would generate more than $800,000 in additional income over 3 years. Over 5 years, that gap widens to over $1.3 million. After a decade, the bond investment could grow to more than $15.5 million—nearly $3 million more than if it had remained in cash. Over the long term, the difference becomes hard to ignore and underlines the case for looking beyond cash when aiming to grow and preserve wealth.
The combination of higher yields, lower cash rates, and solid fundamentals creates a favorable entry point for moving strategic liquidity into high-quality fixed income. A calibrated allocation anchored in IG bonds can raise portfolio income, improve diversification, and positions investors for attractive total return potential over time.
JPMAM LONG-TERM CAPITAL MARKET ASSUMPTIONS
Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. Please note that all information shown is based on qualitative analysis. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. Note that these asset class and strategy assumptions are passive only – they do not consider the impact of active management. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The outputs of the assumptions are provided for illustration/discussion purposes only and are subject to significant limitations.
“Expected” or “alpha” return estimates are subject to uncertainty and error. For example, changes in the historical data from which it is estimated will result in different implications for asset class returns. Expected returns for each asset class are conditional on an economic scenario; actual returns in the event the scenario comes to pass could be higher or lower, as they have been in the past, so an investor should not expect to achieve returns similar to the outputs shown herein. References to future returns for either asset allocation strategies or asset classes are not promises of actual returns a client portfolio may achieve. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making a decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. The model assumptions are passive only – they do not consider the impact of active management. A manager’s ability to achieve similar outcomes is subject to risk factors over which the manager may have no or limited control.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results.
Index definitions:
We can help you navigate a complex financial landscape. Reach out today to learn how.
Contact usInvestment Strategy
LEARN MORE About Our Firm and Investment Professionals Through FINRA BrokerCheck
To learn more about J.P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our J.P. Morgan Securities LLC Form CRS and Guide to Investment Services and Brokerage Products.
JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank-managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.
Please read the Legal Disclaimer for J.P. Morgan Private Bank regional affiliates and other important information in conjunction with these pages.
Bank deposit products, such as checking, savings and bank lending and related services are offered by JPMorgan Chase Bank, N.A. Member FDIC.
Not a commitment to lend. All extensions of credit are subject to credit approval.
