{"id":13340,"date":"2024-03-12T09:46:13","date_gmt":"2024-03-12T13:46:13","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/?p=13340"},"modified":"2026-03-20T13:54:35","modified_gmt":"2026-03-20T13:54:35","slug":"how-much-should-investors-hold-in-cash","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/insights\/how-much-should-investors-hold-in-cash","title":{"rendered":"How much should investors hold in cash?"},"content":{"rendered":"\n

Whenever there is financial, economic or political uncertainty, investors can often consider whether they should move some of their assets into classes traditionally seen as “safer” \u2013 the primary one being cash.<\/p>\n\n\n\n

While such thinking may be understandable when the financial picture is turbulent<\/a>, it\u2019s always best to avoid emotionally charged decisions<\/a> when managing money and investments.<\/p>\n\n\n\n

When it comes to cash, in particular, there isn\u2019t one single answer to the question, “How much should I hold?” As with any wealth-planning decision, the key is to take a step back and look at the bigger picture: the balance between the assets you hold and how this aligns with your short-, mid- and long-term goals, your age, tolerance to risk and existing investment portfolio choices will all come into play.<\/p>\n\n\n\n

At the simplest level, cash holdings typically include savings accounts and deposit accounts such as fixed-term deposits, and premium bonds.<\/p>\n\n\n\n

\u201cWhen thinking about cash, it\u2019s important to consider liquidity,\u201d explains Chris Wilson, director \u2013 Investment Manager at RBC Wealth Management in the British Isles. \u201cCash assets are something you would usually want to be able to access pretty quickly for whatever reason. However, not all cash holdings can be accessed instantly, or they may come with a penalty for doing so.\u201d<\/p>\n\n\n\n

It\u2019s also important to note that while liquid assets usually come with lower risk and lower returns, that doesn’t mean there is zero risk. \u201cFor example, a bond market<\/a> can be very liquid, but you could be forced to sell a bond at a time when the market is down,\u201d says Wilson. \u201cSo, we would deem that as riskier than something like a savings account or a fixed-term deposit.\u201d <\/p>\n\n\n\n

Why are you holding cash?<\/h2>\n\n\n\n

Perhaps the most important question to start with is not “How much cash should I hold?” but “What are my financial goals<\/a>?” Once you have worked out what those objectives are, you can better determine what to do with your assets, including cash, and what your risk profile is.<\/p>\n\n\n\n

Individuals could consider segregating their wealth planning into multiple investment objectives, such as retirement planning<\/a>, paying for children\u2019s (or grandchildren\u2019s) school or university fees, investing in a business, buying or renovating a home and providing for family after death.<\/p>\n\n\n\n

These goals will likely require different investment approaches. In some instances, it makes sense to tie funds up for the long term, whereas others may need more liquidity.<\/p>\n\n\n\n

How much cash do you need?<\/h2>\n\n\n\n

\u201cWhen it comes to working out how much cash to hold, a useful starting point is to break it down into planned and unplanned expenses,\u201d says Nick Ritchie, senior director of Wealth Planning at RBC Wealth Management in the British Isles. \u201cPlanned expenses could include the basic costs of running a home and going on holiday. These expenditures could be paid for by a regular income, for those who are still earning, or come out of cash reserves, for those who aren’t.”<\/p>\n\n\n\n

He adds: \u201cThen there are planned larger capital expenses, such as home renovations or a new car, which could happen in the next few years and can’t be paid for from income alone. If this is in a three-to-five-year time horizon, it may be worth retaining that in cash and keeping it relatively accessible.\u201d<\/p>\n\n\n\n

More unpredictable, of course, are the unplanned expenses, such as unexpected tax bills, home repairs or a change in professional circumstances \u2013 and it\u2019s here that investors will need to look at cash-flow management to establish their “rainy day” fund. \u201cThis is personal to the individual,\u201d says Ritchie. \u201cBut we might say to retain six-to-12 months\u2019 worth of expenditure, so that if someone doesn\u2019t want to be forced to access their investments, they’ve got readily available capital.\u201d<\/p>\n\n\n\n

The amount of ready capital will vary from one person to another. For private equity professionals, for instance, who may receive capital calls<\/a>, the fund would likely be much larger. \u201cBy anticipating liquidity demands, the more likely someone will be able to avoid becoming a forced seller of investments,\u201d explains Ritchie. \u201cNot least because this can potentially crystallise a loss.\u201d<\/p>\n\n\n\n

How do you determine your cash position?<\/h2>\n\n\n\n

\u201cWhen times are uncertain, investors may want to hold on to cash until markets pick up or there is less volatility,\u201d says Wilson. \u201cBut the problem with trying to \u2018time\u2019 the market<\/a> like this is they could miss the boat. Higher interest rates can complicate the picture slightly, in that some investors may feel it is sensible to keep cash destined for inevitable investments in savings, rather than long-term assets such as equities. But as history continues to show, the markets typically outperform cash in the longer term <\/a>.\u201d<\/p>\n\n\n\n

Ultimately, deciding how much cash to hold depends on what you need it for. The following factors can help with your decision-making:<\/p>\n\n\n\n