With 2024 only a few days away, investors are gearing up to adjust their portfolio for potential Federal Reserve rate cuts.

NewEdge Wealth Senior Portfolio Manager Ben Emons joins Yahoo Finance Live to explain why investors won't want to be in cash once the Fed starts cutting rates.

Emons points out that there is a lot of money sitting in money market accounts in a bid to take advantage of higher interest rates, saying "there is something about cash that still adds income to your portfolio, but then it does get different once the Fed does start lowering rates," adding that the cash can be used to take advantage of different opportunities.

When it comes to risks in 2024, Emons warns of “challenges” in the US House and Senate, including concerns about international aid, spending cuts, and the 2024 election. Internationally, Emons notes the geopolitical tensions in the Middle East.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: Ben, I love in your note, you say cash is in the trash here. Walk us through why cash in the trash in 2024.

BEN EMONS: And it feels like that anthem, right, of, like, you have this pivot party. So you throw your cash in the trash and you, you know, take your plates out for stocks and bonds. And I think the idea here, Brad, is that we still have very high rates on T-bills as an example, right, and that will not change until the Fed actually cuts rates, so there's something about cash that still adds income to your portfolio. But then it does get different once the Fed does start lowering rates and to an extent follows what the market has priced in.

So it I'd say the word trash is maybe somewhat like exaggerated, but the idea is that we did put a lot of money into cash this year as those money market funds indicate. Part is uncertainty, part is the higher rates, part is the belief that rates will stay much higher, and it seems that story has changed. So, yeah, putting it in the, quote unquote, "trash" and using it for different opportunities, I think that's the story next year.

SEANA SMITH: Ben, what do you think is the biggest risk as we look ahead to the markets in 2024? Yes, there's a lot to be excited and optimistic about, especially when we talk about rate cuts and maybe even getting multiple ones of those here in 2024, but in terms of what investors should keep an eye on when it comes to maybe what they are not watching right now, some of those challenges, what would you say is the biggest risk in 2024?

- I think there are two risks developing, and one obviously is our own US political situation. I mean, we do have still challenges in the House and the Senate about getting Ukraine funding through and that sort of thing, and what that could result into is that the mandatory spending cut of 1% across the board really starts to take effect as of January that will change then to some extent the impulse that the economy has had from fiscal spending this year.

Obviously we get our presidential election much later in the year that-- to the run up, and that could cause a lot of like, I guess, trepidation and uncertainty among people. But the other angle here is the geopolitical angle, and we cannot forget what's happening currently in the Suez Canal and these attacks that are happening that's all indirectly related to what Iran's role is in the war in Gaza. So how that will play out is unknown, right?

One thing about the glowing story I've been talking about that could derail to the extent is that we do get an energy price shock driven by developments that we're seeing currently. So I think keep that in the back of the minds in terms of what could happen next year, because it's not, of course, all glowing story. There's always a risk-reward here, and I think that's one of those risks, the developments in the Middle East and what happens with our presidential election.

BRAD SMITH: Ben Emons, New Edge Wealth senior portfolio manager. Ben, thanks for kicking off the trading session and the trading week with us.

BEN EMONS: Thank you, Brad, Seana. Thank you very much for having me.

BRAD SMITH: Good to see you.