Between 2009 and 2022, cash was almost a dirty word for investors. Why hold cash and get 1% when you can buy a stock and fairly reliably get 10%, 25% or more?
And of course, bonds weren’t much different.
How times have changed!
Overall, the stock market has remained strong since 2022, even if for much of that time it was the Magnificent 7 (or at least some of them) that were doing most of the heavy lifting. Given the political developments of the last several years, both domestic and international,“remarkably resilient” is a fair way to describe both the stock market and, to a large extent, the U.S. economy.
In today’s environment, how should you think about cash in your portfolio?
This is against a backdrop of individuals piling a record amount of money into money market accounts in recent years.
For most of the past 20 years, you can see the rate of return, represented here by the Crane 100 Annualized 7-day Net Yield for money market funds, correlated closely with rises and falls in the total amount in those funds. The most notable exception has been over the last three years when rates have fallen from 5.2% to 3.49% (a drop of 33%) while the total funds have increased from $2.23T to $3.02T (an increase of 35%).
For me, this triggers two thoughts.
First, why are people holding so much cash? The big build-up began after the pandemic. As we can see, interest rates were almost certainly a factor, particularly up to 2023. It also seems likely that general uncertainty played a role in the post-pandemic world, as supply chain vulnerabilities that were revealed spooked many. It is also easy to imagine that the ongoing geopolitical tensions, shifting trade barriers, and strategic realignments have contributed to investor uncertainty. The run-up in gold would seem to support that theory as well.
Second, how should you think about cash in your holdings?
This question came to me as I read a recent article in The Wall Street Journal, “Readers Share How Much Cash They’re Keeping in Their Portfolios” (August 19, 2026).
That article spoke with a retired couple in their mid-70s with 2-3% in cash, a 70-year-old with 20% in cash (and no bonds), a 40-year-old with 90% in cash, a 68-year-old with 18% in cash, and a 71-year-old with 11% in cash.
I am not a personal investment advisor and am not going to suggest what your holdings should be. I can and am going to talk about the implications of different cash levels though. And I’m going to start with the retired couple with just 2-3% in cash. Perhaps they have an enormous portfolio, or plenty of other highly liquid assets. I don’t know, which is why I am NOT advising them.
As a general rule, 2-3% would be on the very low side for retirees. If there is a massive market meltdown, they seemingly don’t have a lot of cushion at that level. And, from an investing standpoint, they have very little dry powder if the market does present great buying opportunities.
At the other extreme, a 40-year-old with 90% of his assets in cash is WAY too conservative, particularly as rates on money markets have dropped so much over the last couple of years and inflation is flat or rising slightly. Either there are some extreme circumstances involved, or this guy must be making investing choices that fly in the face of normal recommendations, because I can’t see how any book, newsletter, or personal advisor would ever tell someone in the prime of his career to keep 90% in cash in this market. History provides no basis to think this is a good strategy.
So, what is right?
Of course, the answer depends on many factors – age, income, wealth, employment status, cost of living, financial goals, etc.
As an investing observer and analyst, here’s what I can tell you about cash.
Living Expenses: You want to make sure you have sufficient liquidity to cover your living expenses for some period of time in case your circumstances suddenly change. That should be outside of your investment portfolio.
Defensive Strategy: Raising cash in your portfolio at times of uncertainty or near what appear to be market tops is a long-proven sound strategy. Within their advisory portfolios, many of Cabot’s analysts do this. Even so, in the 56 years we’ve been doing this, I don’t think any of our analysts has ever gone to 100% cash. In 2008/2009, I believe we did have some that went as high as 80% or 90%, although those were fairly brief.
Offensive Strategy: To me, one of the most important reasons to keep some cash is to take advantage of opportunities when they arise. In the case of a correction, there can be compelling buy opportunities, and it may be a bad time to liquidate your current holdings. At times like that, having some cash available can make a big difference.
How about you? What’s your view on how much of your assets to keep in cash? Please share your thoughts with me, and I will update this post. You can email me directly at ceo@cabotwealth.com.
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