For many long-term investors, one of today’s growing challenges is deciding what to do with cash as short-term interest rates begin to fall.

Keeping extra cash on the sidelines can feel safe, especially after a few years of high rates and market uncertainty. But what feels “risk-free” can quietly work against you over time, limiting your ability to grow your wealth and stay ahead of inflation.

Right now, investors are holding a record $7.3 trillion in money market funds, the highest level ever recorded. The question is: how much of that cash is helping long-term goals, and how much is actually holding them back?

The role of cash in your plan

Cash absolutely has a place in every financial plan. It provides flexibility, stability, and immediate access when you need it most.

That includes:

• Covering short-term expenses or upcoming purchases
• Maintaining an emergency fund
• Preparing for near-term goals like tuition, travel, or home projects

But when too much cash accumulates beyond what’s needed for those goals, it stops working for you. Excess cash can miss out on opportunities for growth, income, and protection against inflation.

Why holding too much cash can hurt

Cash feels safe because the number on your account doesn’t move much. But the real measure of wealth isn’t the number, it’s what your money can buy.

If inflation rises 3% per year and your savings earn 2%, your purchasing power quietly drops 1% each year. That difference compounds over time, and for retirees or those planning decades ahead, it can create a meaningful gap in long-term financial security.

There are two key risks investors face when holding too much cash:

1. Inflation risk​
Even with higher short-term yields, savings accounts and money market funds rarely keep pace with inflation for long periods. Over time, this erodes the real value of your money.

2. Reinvestment risk​
Short-term rates don’t stay high forever. If the Federal Reserve continues to lower rates, yields on savings and money market accounts could drop quickly. Investors who have relied on these short-term rates may find themselves earning less than inflation.

The power of staying invested

History shows that stocks and bonds have consistently outpaced inflation over time.

Even after major market pullbacks and recessions, diversified portfolios have rewarded patient investors. While past performance never guarantees future results, staying invested through cycles has historically created lasting wealth that cash alone can’t match.

For example, a balanced portfolio that earns just a few percentage points above inflation can grow over 20 or 30 years. The compounding effect of those steady gains is what drives long-term success.

A record amount of “cash on the sidelines”

Many investors shifted into cash during recent years of market volatility and high yields. Today, money market fund assets have nearly doubled since before the pandemic.

As rates begin to moderate, that cash may face reinvestment challenges. Investors who moved to the sidelines could find that their “safe” money no longer keeps up with inflation or market growth.

Moving cash back into the market doesn’t have to happen all at once. Strategies like dollar-cost averaging can help you re-enter gradually, reducing timing risk while capturing long-term growth opportunities.

Finding the right balance

Cash serves a purpose, but too much can quietly cost you in the long run.

The goal isn’t to choose between cash or investments, it’s to find the right mix that aligns with your plan. Maintaining enough liquidity for your needs while keeping the rest of your portfolio invested for growth is what creates true financial balance.

If you’re unsure whether your current cash position supports your goals, our Free Retirement Evaluation can help. We’ll review your savings, investments, and income plan to ensure your money is working efficiently toward your long-term objectives.

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​Keeping wealth in focus,

The MY Wealth Management Team