Is Keeping Too Much Money in Cash Riskier Than You Think? 

For many people, keeping a large portion of their wealth in cash, CDs, money market funds, or other conservative investments may feel like the responsible choice. 

There is comfort in knowing the account balance will not suddenly fall 20% because of a bad year in the market. There is comfort in avoiding the regret that comes with watching investments decline. And after spending decades diligently accumulating wealth, taking risk with that money can feel almost irresponsible. 

But there is a problem with defining risk only as the possibility of seeing your account balance decline. 

Money that rarely fluctuates can still lose purchasing power. A portfolio that is too conservative can miss decades of potential growth. And wealth you protect so aggressively that it limits what you can comfortably spend may fail to accomplish the very purpose you built it for. 

The danger is that these costs are much harder to see. 

A market decline shows up immediately on your statement. Missed growth does not. No financial institution sends you a statement showing how much more your portfolio might have been worth had money intended for the next 20 years not remained in cash. 

That difference matters because people tend to feel investment losses acutely. Researchers call this myopic loss aversion: the tendency to focus heavily on short-term losses when making long-term investment decisions. A 2021 study that paired laboratory experiments with real trading data from stock market investors found that this bias shows up outside the lab, too. Investors who displayed it under experimental conditions went on to hold smaller, more conservative positions and trade more often with their actual money. 

In other words, the risk we can see and feel today can command far more attention than a cost that may reveal itself only years later. 

That is one reason being conservative can feel completely safe even when it creates meaningful long-term risk. 

The goal of investing is not to eliminate risk. That is impossible. The goal is to understand the different risks you face, decide which are worth taking, and build a financial strategy around what your money actually needs to accomplish. 

For some investors, the greatest risk may not be taking too much risk. 

It may be taking too little. 

Cash Is Not the Problem 

To be clear, cash serves an important purpose. 

You shouldn’t invest money you need to pay next month’s bills in the stock market. The same goes for an emergency reserve or money earmarked for a major purchase in the near future. Cash provides liquidity, certainty, and flexibility, all valuable characteristics in a financial plan. 

A May 2026 Vanguard research paper on managing cash makes essentially this distinction. It sorts money by when you’ll actually need it: what covers regular expenses and emergencies within the next year, what you might need on an uncertain timeline, and what will fund goals many years away. Only the first category needs to sit in cash. The rest can stay invested and focused on longer-term objectives. 

The question, therefore, isn’t whether you should own cash. 

It is how much of your money needs to be safe today, and how much will fund a future that may be decades away. 

Those dollars have very different jobs. 

Someone retiring at 65 may reasonably expect some of their money to support them at age 85 or 90. Treating money you may not spend for 20 or 25 years the same way as next year’s living expenses can create an entirely different kind of risk. 

The Cost You Never See 

Consider what happens when long-term money remains in cash not for a few months, but for years. 

A separate, earlier Vanguard study followed investors who rolled money from workplace retirement plans into IRAs. One year after the rollover, 28% of the investors studied still had those assets in cash or cash equivalents. And money that remained in cash after the first year tended to stay there for years afterward. Among investors in their 20s, 73% were still sitting in cash a year in, and more than half remained there seven years later. 

According to Vanguard, for investors younger than 55, investing rollover assets into an age-appropriate target-date fund rather than leaving them in cash was estimated to result in at least $130,000 of additional retirement wealth by age 65. 

That does not mean stocks, or any particular investment, will deliver a guaranteed return. They will not. 

It illustrates something more important: the decision to avoid investment risk can carry a cost of its own. 

Imagine losing $50,000 in a market downturn. You would know exactly what happened. You would see it on your statement, and you would probably remember it. 

Now imagine accumulating less wealth over a couple of decades because a large portion of long-term assets remained in overly conservative investments. 

Where does that loss appear? 

It doesn’t. 

There is no transaction labeled “opportunity cost.” There is potentially less money at the end. 

That makes excessive caution psychologically easy to maintain. 

Sometimes “Conservative” Isn’t Even a Deliberate Strategy 

There is another interesting finding in Vanguard’s research. 

In a related 2024 survey, Vanguard found that investors who had left IRA rollover assets in cash were about twice as likely to have done so unintentionally as on purpose. Two-thirds did not realize how their IRA was invested, and only about one-third said remaining in cash was an intentional choice. 

These weren’t necessarily inexperienced investors. Many already owned investment accounts and demonstrated basic investment knowledge. 

The money had simply landed in cash and stayed there. 

That illustrates something I frequently see in financial planning: a portfolio does not always represent a carefully considered investment philosophy. 

Sometimes it represents a series of decisions, or nondecisions, made over many years. 

A CD matured, and the money went into savings. 

Someone rolled a 401(k) into an IRA, and the money remained in a money market fund. 

Someone sold a house, and the proceeds sat in the bank while they decided what to do next. 

Markets became volatile, so investing was postponed until things “settled down.” 

Years later, what began as a temporary parking place has quietly become a permanent portfolio. 

What Waiting Really Costs 

If you recognize yourself here, you probably are not ignoring the question. You likely know that some of your money should be invested. You just haven’t felt a pressing reason to act, and the market headlines always seem to offer a reason to wait a little longer. 

That is understandable. It can also be expensive. 

Consider a hypothetical example. Suppose $1 million grows at an assumed annual rate of 3%. Compare that with the same $1 million growing at an assumed rate of 7%. These assumed rates are used solely to illustrate the mathematical effect of different rates of return and do not represent the actual, expected, or projected performance of any investment, portfolio, or investment strategy. Assume inflation also runs at 3%. 

• After five years, $1 million compounding at 3% would grow to about $1.16 million. At an assumed 7% rate, it would grow to about $1.40 million. The gap is more than $240,000. 

• After 10 years, the respective hypothetical values would be about $1.34 million and about $1.97 million. The gap is more than $620,000. 

And here is the part that is easy to miss: after adjusting for 3% inflation, the $1 million compounding at 3% is worth exactly what it was worth on day one. Ten years of patience, and its purchasing power has gone nowhere. 

More than $600,000 is not a rounding error. For many families, it represents several years of retirement spending, a meaningful gift to children or grandchildren, or the difference between spending with confidence and constantly wondering whether you can afford it. 

This hypothetical example is for illustrative purposes only. The assumed rates of return are used solely to demonstrate the mathematical effects of compounding and do not represent any actual, expected, or projected performance of any investment or investment strategy. Actual investment returns fluctuate and may be negative. The illustration does not reflect fees or taxes, and does not guarantee future results. Past performance is not indicative of future results. 

Real returns will not arrive in a smooth line. Some years a balanced portfolio will lose money, and some years cash will look like the smarter choice. But the longer long-term money waits, the more potential cost can compound. 

Waiting for markets to “settle down” carries its own risk, because no one sends a signal when that moment arrives. Fidelity found that a hypothetical investor who missed just the five best days in the market between 1988 and 2024 would have ended up with a portfolio worth 37% less than one that stayed invested. 

There will always be a reason to wait. 

The question is whether you can afford to keep paying for it. 

But Taking More Risk Isn’t Always the Answer 

This is where the conversation needs some nuance. 

If being too conservative can be risky, it does not follow that investors should simply own more stocks. 

Taking too much investment risk presents very real dangers as well. 

This is particularly important around retirement, when withdrawals from a portfolio magnify the consequences of a major market decline. Morningstar’s most recent retirement-income research highlights what’s known as sequence-of-returns risk: poor returns early in retirement can substantially damage a portfolio when the investor is simultaneously withdrawing money from it. 

In its modeling, nearly 70% of the portfolio failures Morningstar identified involved cases where the account had already lost value within the first five years of retirement. The research also found that balanced portfolios, generally holding 30% to 50% in stocks with the remainder in bonds and cash, supported higher sustainable withdrawal rates than either an all-stock portfolio or an overly conservative one. The bond allocation can act as a shock absorber against those early losses, which in turn may support a higher spending rate over time. 

So the lesson is not: 

Take more risk. 

It is: 

Take the right risks. 

And determining the right amount of risk requires more than completing a questionnaire asking whether a 20% market decline would make you nervous. 

It requires knowing what the money is for. 

Your Portfolio Should Reflect Your Life 

Consider two couples who each have $2 million. 

One couple, both 55, is still working, spends $100,000 a year, and expects significant Social Security and pension income in retirement. 

The other couple is 70, relies heavily on the portfolio for living expenses, plans to buy a second home next year, and wants to leave a substantial inheritance to their children. 

Their account balances may be identical. 

Their appropriate investment strategies probably are not. 

Determining how much risk someone should take means understanding questions such as: 

• How much money will you actually need from the portfolio? 

• When will you need it? 

• How much of your future spending is already covered by Social Security, pensions, or other income? 

• How much cash should be available for short-term needs? 

• How much volatility can your plan withstand? 

• How much volatility can you withstand without abandoning the strategy? 

• What are you ultimately trying to accomplish with the wealth? 

This is where investment management and financial planning begin to merge. 

The appropriate portfolio should not aim to help maximize returns or minimize volatility. It should be built around supporting the things that matter to you. 

Safety Is More Than Avoiding a Market Decline 

For someone who has spent a lifetime saving, it is understandable to want to protect what you have accumulated. I’ve written before about why the feeling of security often lags behind the numbers, even for people who are objectively in good shape. 

But protecting your money and protecting your financial future are not always the same thing. 

A portfolio can experience very little short-term volatility while still exposing you to inflation, insufficient growth, and the possibility that fear of losing money causes you to unnecessarily restrict your life. 

Conversely, a portfolio can fluctuate significantly from year to year while still being entirely appropriate for money you won’t need for decades. 

The question therefore shouldn’t simply be: 

“How do I make sure I don’t lose money?” 

A better set of questions is: 

• What does this money need to accomplish? 

• When will I need it? 

• What risks could prevent me from achieving those goals? 

And then: 

Am I taking the right amount of risk, or have I confused avoiding volatility with being safe? 

Because sometimes the investment that feels safest today can create the greater risk tomorrow. 

If a meaningful share of your long-term money is sitting in cash, or you are not sure how your accounts are actually invested, it may be worth getting a second opinion. Schedule a no-obligation call with our team, and a Savant advisor can take a look at your portfolio alongside what your money needs to accomplish. We are always glad to help you think it through. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment or tax advice from Savant. Please consult your investment or tax professional regarding your unique situation.