Holding cash feels reassuring. It doesn’t rise and fall with markets, it’s readily accessible, and in uncertain times it can feel like a safe harbour. For many people, having money in the bank provides peace of mind, and that has real value.
However, while cash plays an important role in any financial plan, holding too much of it for too long can quietly work against your long-term goals, especially when interest rates are starting to fall again.
When clients talk to us about holding higher levels of cash, the reasons are usually understandable. Markets feel risky, headlines are unsettling, or they’re waiting for a “better” time to invest. Others simply value flexibility and control. These instincts are human, but financial decisions are most effective when they’re deliberate, not reactive.
The biggest risk with cash isn’t volatility. It’s inflation. Over time, rising prices steadily erode the spending power of money sitting on deposit. Even with interest rates higher than they were a few years ago, once inflation and tax are taken into account, many savers are still losing ground in real terms. What feels like a low-risk choice today can become a high-risk one for future objectives.
Cash absolutely has a job to do
Holding cash makes sense when it’s set aside as an emergency fund (typically three to six months’ expenditure), earmarked for known short-term spending such as a property purchase or school fees, or used strategically to support income needs, particularly in retirement. In these situations, certainty and accessibility matter more than growth.
Problems often arise when people sit in cash waiting for markets to “settle down”. Market recoveries are unpredictable, and history shows that some of the strongest days often follow the worst. Missing just a handful of those days can significantly reduce long-term returns. By the time investing feels comfortable again, markets have frequently already moved on.
Cash is often labelled “low risk”, but risk depends entirely on time horizon. Over days or weeks, cash is stable. Over years or decades, it carries a real risk of failing to keep pace with future needs. For long-term goals, retirement, family planning, or legacy objectives, the danger of not growing capital can outweigh the discomfort of short-term market ups and downs.
A more balanced approach recognises that different pots of money have different purposes. Keeping sufficient cash for security and peace of mind, while investing surplus capital in line with long-term goals, is often the most effective strategy. Diversification helps manage volatility rather than avoiding it altogether.
The key takeaway? Cash isn’t good or bad, it’s a tool. The important question isn’t whether cash is safe, but safe for what purpose, and for how long.
