The obvious answer is that it depends on your financial situation, age, net worth and risk tolerance. I am trying to decide on the right amount of cash I should hold.
I found this through internet search on this topic:
“According to the U.S. Trust Survey of Affluent Americans, investors with over $3 million in investable assets typically hold around 15% of their portfolios in cash and cash equivalents. However, the amount of cash an investor holds can vary depending on their age and net worth:
The Silent Generation
Investors in this age group (ages 77 and up) tend to hold around 23% of their portfolio in cash.This is because they prioritize capital preservation and stability.
Millennials
Younger high-net-worth Millennials tend to hold around 11% of their portfolio in cash. This is because they have a greater appetite for risk and growth.
Here is a link that provides more details:
https://finance.yahoo.com/news/guess-percentage-wealth-rich-keep-170015736.html
What has been your strategy to decide on what % cash to hold in your investment portfolio?
My wife has always liked (and therefore we’ve kept) an emergency fund in cash of about $100,000. That’s become a smaller percentage of our world as our net worth has increased, but the EF has stayed about the same. That amounts to around one year of household expenses.
Frankly, it’s probably “too much” and it appears to be more than most financial experts advise. But I’ve come to enjoy it and I take comfort in the security it gives us. And it makes me feel better about being more aggressive in our stock portion of our portfolio.
I’ve always thought that one’s personal financial situation coupled with risk tolerance provided an answer. As we learned a couple of years ago, even bond funds/ETFs can be riskier than we might think them to be.
I run an exercise to aid me, and I re-run this each year. I consider the impact a 20 or 30% decline in the equity portion of my portfolio. For example, at one time my portfolio was 70/30% equities/bonds-cash. A 20% equity decline would reduce the value of the portfolio by 14% and would yield a 65/35 portfolio allocation.
For a 50/50 portfolio a similar decline in equities would reduce the value of the portfolio by 10%. The resulting portfolio would have a 44/56% allocation.
A question I always asked was simply “Can I tolerate such a market decline and the reduction in the value of my portfolio?” Only I can answer that question. As retirement drew near, and RMDs, I decided I preferred a lower equity allocation than 70/30%.
I also consider the impact of low returns on cash and bonds because low interest rates can have an outsize impact on my long-term plan which assumes a specific inflation of 3.6%. When returns on bonds/cash were lower than they currently are, I was more inclined to hold more equities. As time goes by, I’ve shortened our horizon to match our probable lifespans.
I think it also depends on the total financial picture and intended use of the investments. If they are relied upon for income, the answer may be different from other purposes. How is cash equivalents defined?
Washington, DC; March 27, 2025—Total money market fund assets increased by $11.80 billion to $7.01 trillion for the week ended Wednesday, March 26, the Investment Company Institute reported.
This amount is up from the record $6.22 trillion parked in US money market funds as of August 2024 noted in the original article and comments by smr1082 four months ago.
I knew of some upcoming 2025 expensive plumbing issues and other life events demanding near term cash. In January I had also decided to lower my 70% allocation to equities. In hindsight I think I have been lucky to have taken those actions early in January and February.
I did not stay in my past asset allocation as I worried about my level of cash to meet our needs in the event of additional unexpected 2025 cash needs. Absent a near term major unexpected life event I expect my change to a 50% equity asset allocation will not change going forward.
I wonder if the trend of higher amounts in money market funds is partly the result of a huge number of other baby boomers making similar decisions.