Over the past few years, historically high interest rates have led many investors to hoard cash, far beyond the recommended 3 to 6 months of living expenses typically held for emergencies. While conservatism may feel safe, holding too much cash for too long can erode long-term investment returns. 

Now, as interest rates on money market funds, CDs, and high-yield savings accounts begin to decline, and stock markets sit at all-time highs, many investors are finally shifting excess cash into more productive investments. Better late than never, but for long-term investors, it’s critical to avoid the “cash drag” that can slow portfolio growth. Let’s explore why it’s time to rethink your cash strategy.

Why Cash Hoarding Increased in Recent Years

As the Federal Reserve raised rates to fight inflation, yields on cash-like investments such as money market funds and CDs jumped. Many investors shifted large sums into these accounts to capitalize on yields not seen in decades. 

New research from JPMorgan Chase Institute supports this trend, finding that Americans’ total cash reserves, including brokerage accounts, money market funds, and CDs, have increased since mid-2024. 

According to the report:

• Households across income levels have rebuilt their total cash reserves.
  
• Inflation-adjusted checking and savings balances remain flat, while balances in higher-yielding vehicles have grown.
  
• These accounts appear to be used as short-term parking, not long-term investment strategies.

At Navalign, we’ve seen the same pattern: clients holding far more cash than we recommend for an emergency fund.

The Opportunity Cost of Holding Excess Cash

While higher interest rates made cash more attractive in the short term, the total return on many fixed-income investments, like bonds, has actually outperformed cash equivalents over the past year. As a result, overly conservative investors missed out on stronger returns elsewhere.

Now, with the Federal Reserve expected to lower interest rates later this year, the yields on cash accounts are likely to fall even further. Meanwhile, long-term investments like stocks and diversified bonds continue to offer growth potential, which cash simply cannot match.

This creates what’s known as “cash drag”, a performance drag that erodes your portfolio’s growth and makes it harder to achieve long-term goals like retirement or legacy planning.

How Much Cash Should You Really Hold?

At Navalign, our fiduciary advice for smart cash management remains consistent:

• Keep 3–6 months of essential living expenses in an accessible checking, savings or money market account for emergencies.
• Anything beyond that should be invested in a portfolio aligned with your long-term goals, risk tolerance, and time horizon.
• Revisit your financial plan regularly to ensure your cash strategy still makes sense as market and economic conditions change.

What Should You Do Next?

If you’ve been holding extra cash, now is the time to work with a fiduciary financial advisor to create a plan for redeploying those funds. With markets at or near all-time highs and rates trending downward, the opportunity cost of staying on the sidelines is rising fast.

Working together with your financial advisor, we can help you: 

• Assess your current cash reserves and identify excess.
• Build a customized investment plan to put that cash to work for you.
• Minimize taxes and risk while staying aligned with your long-term goals.

Don’t Let Cash Drag Down Your Future

In uncertain times, it’s natural to seek safety. However, excessive cash holdings come at a hidden cost, one that a sound financial strategy can help you avoid. 

Ready to put your excess cash to better use? Let’s talk about how to align your money with your long-term goals. Reach out to Navalign Wealth Partners today for a personalized strategy that puts your cash to work in a more efficient and goal-focused way.