Cash is a funny thing. It doesn’t earn much interest. It’s not an “investment” in the traditional sense. By itself, it doesn’t have utility; it’s merely a placeholder for some other thing you could trade it for. It sits there in your account, day by day, doing nothing. When you consider inflation, it’s doing worse than nothing.
Yet without cash, your financial world would grind to a halt. You need it for bills and groceries. You need it for that exciting new gift for your spouse. If you own a business, you could find yourself in deep trouble if you don’t have enough cash for payroll. It’s there in the background, a part of your financial life in every imaginable way.
Why Financial Advisors Focus on Cash Management
HBKS Wealth Advisors has a lot of resources devoted to researching investments. We have a group of highly credentialed and highly capable people who devote nearly all their time to that part of the business. That said, as a financial advisor and planner, I spend more time on cash as an asset class than anything else in the portfolio. I work to keep incoming dividends and interest invested. I work to generate cash for clients taking regular withdrawals. I work to preserve it for big life moments: down payments, weddings, and dream vacations, to name a few. I work to turn cash into some other investment, whether it’s a money market fund, stocks, a U.S. Treasury bill, or something else altogether. When a client is finally taking their family on that big trip, I’m the one sending them the cash to do it.
The Psychology of Cash Holdings
There’s an emotional side to cash. You can see it, touch it (kind of), and move it around. You know it’s there. It feels safe. Even clients with strong stomachs for market risk often keep more cash than financial models recommend. This isn’t because it’s optimal, but because it helps them sleep at night.
And frankly, that matters. If holding some extra cash helps someone stay disciplined with the rest of their portfolio, that’s not inefficiency. That’s a behavioral win.
Then there’s the idea of optionality. Holding cash gives you the ability to act when opportunity strikes. It could be a business investment, a once-in-a-lifetime piece of real estate, or simply a chance to rebalance when markets are down. In those moments, having cash available is an advantage.
The Hidden Costs of Too Much Cash
But cash has a downside too, especially when you hold too much of it for too long. The most obvious cost is inflation. Over time, cash loses purchasing power. The long-term historical average rate of inflation is around 3% per year. That may not sound like much at first, but it adds up.
Imagine you stuffed $100,000 under a mattress 10 years ago and never touched it. With cumulative inflation over the past 10 years, that money would now only buy you about $74,000 worth of goods and services in today’s dollars. That’s a 26% loss in purchasing power, just from sitting still!¹ You didn’t lose money on paper, but you lost real-world value, which is arguably more important. Quietly. Relentlessly.
Then there’s the opportunity cost. Every dollar sitting on the sidelines is a dollar not working toward your long-term financial goals. It’s easy to feel “safe” in cash, but over the course of decades, that safety can quietly become a drag. A portfolio that leans too heavily on cash may underperform inflation, miss out on growth, and fall short of what you need it to do.
Too much cash can also create a false sense of security and lead to decision paralysis. People sometimes hesitate to invest because they don’t want to “get the timing wrong.” So they wait. And wait. And years go by. The market doesn’t wait.
Finding Your Optimal Cash Balance
Cash matters. But like anything in financial planning, too much of a good thing can become a liability.
The key is to strike the right balance. You need enough cash to cover needs, cushion volatility, and seize opportunity. But not so much that your long-term goals fall behind.
Here’s to holding just enough cash and knowing why you’re holding it.
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¹ Based on cumulative U.S. inflation from June 2015 to June 2025, which totals approximately 26% over that 10-year span, according to the U.S. Bureau of Labor Statistics Consumer Price Index (CPI).
Important Disclosure
The information and examples included in this document are for general, educational, and informational purposes only. It does not contain any financial or investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any financial or investment advice. If you would like financial or investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy, or allocation (including those recommended by HBKS Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy, or allocation may not be indicative of future results.
