Charles and Trudy Hess know that standard financial advice is to keep a cash reserve equal to three to six months of living expenses. Yet the Dallas couple, both in their late 50s, now maintain a cash hoard that could carry them through two or three years.
And as money comes in from their small home-based art and collectibles business, that, too, goes into short-term savings accounts.
Like many Americans, the Hesses could be investing in the depressed stock market. "We think there are some very good bargains out there on a five- or 10-year basis," Charles Hess said.
But also like many Americans, the Hesses find themselves feeling particularly risk averse these days. Amid the huge uncertainties facing the markets with the threat of war looming, individual investors are piling up cash in low- or no-yield accounts or are funneling it into real estate, bonds, gold -- anywhere, it seems, but stocks.
That trend has been building for the last three years, but by some measures it has become even more pronounced in recent months. For example, stock mutual funds suffered a net cash outflow of nearly $500 million in January, the industry's chief trade group said last week. Normally, such funds enjoy large money inflows at the start of the year.
While stock funds saw dollars leave, Americans bought existing homes at a record annualized pace of more than 6 million units in January, according to the National Assn. of Realtors.
But perhaps most telling of investors' mood is the buildup of cold cash -- money in short-term vehicles including checking accounts, basic savings accounts and money market mutual funds.
The amount in a tally of short-term accounts that the Federal Reserve labels "money zero-maturity," or MZM, hit a record $6.2 trillion as of Feb. 17, the latest data available.
The total, which is adjusted for seasonal factors, has rocketed by $1.5 trillion in the last two years.
By contrast, the previous $1.5-trillion increase in MZM took nearly four years.
Though short-term cash accounts pay almost nothing now -- with interest rates at 40-year lows -- they provide virtually total safety of the principal. And that safety is worth a lot to millions of investors who are fearful of getting back into the stock market too early and who also may be worried about the hazards of buying alternatives such as real estate or Treasury bonds at today's rich prices.
"People are very concerned about their downside risk," said financial planner Gary Caine, principal at Bruck & Caine Advisory in Culver City. "On the other hand, they're getting restless" about seeing cash pile up, he said. "People definitely have their finger on the trigger."
That may well describe Bill and Sharon Schlarb of Pasadena. The retired couple say they're keeping 20% of their investment portfolio in cash reserves, the largest percentage they've ever had in short-term accounts.
Bill Schlarb said he's waiting for the stock market to stage a convincing rally before putting some of his reserves to work. "Patience pays," Schlarb said. "There's no need to be greedy. A reasonable piece of the next true rally is good enough."
Wall Street is counting on many investors to shift some of their cash savings to stocks -- or to spend it, giving corporate earnings a lift -- once the U.S.-Iraq standoff is resolved.
Economist Ed Yardeni of Prudential Securities in New York refers to the cash stockpile as a "liquidity bubble" that could go a long way toward reviving the economy and the stock market, post-Iraq.
To put the cash balance in perspective, the total value of the U.S. stock market now is about $10 trillion. So there is about 62 cents in ready cash for every $1 worth of stock.
Just how much money might eventually move out of cash and into other investments isn't known. The MZM figure includes holdings of individuals, businesses and government units. Much of it may be permanently designated as short-term savings.
But the type of accounts favored by Americans in the liquidity buildup means a considerable sum could move quickly.
For most of the 1990s, people kept a large percentage of their bank cash in certificates of deposit -- accounts that matured sometime in the future. If you withdrew money before maturity, you paid a penalty to the bank.
Now, the lion's share of bank and savings-and-loan deposits is in regular savings accounts. The interest paid is minimal, but the money usually is available for instant withdrawal. Those accounts hold nearly $2.9 trillion, a sum that has surged $99 billion just since Jan. 1 as war worries have mounted.
That compares with about $870 billion held in so-called small CDs (those of $100,000 or less), according to Federal Reserve data.
Investors also are keeping $2.23 trillion in money market mutual funds, which like regular bank savings accounts are instantly available. About $900 billion of the money-fund total is in funds used by small investors; the rest is controlled by institutions such as pension funds.
Nobody's getting rich off money market funds. Yields have never been lower: The average annualized fund yield fell to 0.77% last week, according to IMoneyNet Inc. in Westborough, Mass. That's a far cry from the 6% investors earned in those accounts as recently as two years ago.
Money funds invest in short-term IOUs of companies and government entities, and the rates paid on those securities move in tandem with the Fed's key short-term rate. The Fed slashed that rate to a 41-year low of 1.25% in November, the latest in a string of cuts aimed at invigorating the economy.
For some investors, the minuscule rates paid on money funds and bank savings accounts mean there's no urgency in moving cash from, say, no-interest checking accounts to savings.
Checking account totals have risen $34 billion since mid-January, to $592 billion, an unusual spike, according to the Fed's historical data. The increase this year could stem from a number of factors. One possibility is that more consumers are getting direct-deposit income tax refunds from the government and simply are sitting on that money.
Whatever the source of the checking-account surge, "I think a lot of people say that savings yields are so low it's not worth the extra step" to shift money from checking accounts to savings accounts, said Pete Crane, managing editor at IMoneyNet.
That reality, and the continuing fear of terrorist attacks, also may be encouraging some Americans to take the desire for instant savings access to the extreme -- by keeping cash stored at home.
It isn't just backwoods survivalists who are making that choice. An investment strategist at a major brokerage in New York said some of the firm's bond traders have told him they're now keeping several thousand dollars in cash at home, to guarantee they've got some liquidity should a terrorist attack corrupt the banking system and shut down automated teller machines.
However, the cash-under-the-mattress strategy isn't recommended by most financial planners, given the risk of theft or fire.