Are You Hold Too Much Cash?
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Are You Holding Too Much Cash?
Something we see often with young investors is holding too much cash or bonds without realizing it. Take a 32-year-old with $500,000 split 90/10 between stocks/bonds and a high-yield savings account on the side. The portfolio might look like this:
- 401k: $180,000 total, with $18,000 of that in cash and bonds
- Individual Brokerage: $150,000 total, with $15,000 in cash and bonds
- Roth IRA: $80,000 total, with $8,000 in cash and bonds
- HYSA: $90,000, all of it in cash
- Combined: $500,000 across all accounts, $131,000 of which is in cash and bonds
When you add it up, they've accumulated $131,000 in cash and bonds. That's 26% of their total portfolio, meaning they're effectively in a 75/25 split, which may be far more conservative than they realize for someone their age.
A high-yield savings account is great for building an emergency fund (3-6 months of expenses) or saving for large expenses like a down payment. But holding this much cash and bonds means a meaningful portion of your portfolio isn't invested in equities.
Takeaway
It's one of the most common issues we run into, especially when people are nervous about investing or when money comes in as a bonus.
It makes sense to feel cautious, especially if markets have been turbulent, but the math doesn't support waiting.
The market has been positive in about 75% of all rolling 12-month periods since 1926. Even if you spread your investments out over a year to feel safer, the odds are 3-to-1 that you'd have been better off putting it to work right away.
Source: Kreischer Miller analysis of S&P 500 rolling 1-year returns (monthly), Jan 1926 to Dec 2017. The market posted positive returns in 74.7% of those periods. Link: https://rationalwalk.com/wp-content/uploads/2022/05/Historical_Frequency_of_Positive_Stock_Returns_K03171V.pdf
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