Are You Holding Too Much Cash? What to Do with Excess Savings

With interest rates near five year highs, many investors are keeping more cash than usual. While earning 4-5% in a high-yield savings account or money market fund feels great, is holding too much cash hurting your long-term financial plan? It's important to balance liquidity with long-term growth to ensure your wealth works for you over time.

Why Holding Excess Cash Can Be a Problem

While it may feel safe to have a large cash reserve, inflation is steadily working against you, eroding the real value of your money over time. Even with higher yields, cash doesn't keep up with the rising cost of goods and services and the historical opportunity cost of being in the market. Having too much cash may tempt you to try to time the market, making it harder to maintain a disciplined investment strategy and stay focused on your long-term goals.

How Much Cash Should You Keep?

• Emergency Fund – Keep ~6 months of living expenses in easily accessible cash.
• Short-Term Goals (1-3 Years) – If you need funds soon (home purchase, tuition, etc.), a mix of cash and bonds makes sense.
• Expected Investment Account Distributions – To avoid having to sell out of equity positions in a down market, aim to keep 1-2 years of expected distributions in cash

Where to Put Excess Cash

• Max Out Tax-Advantaged Accounts – Prioritize 401(k)s, IRAs, and HSAs to reduce taxes and grow wealth.
• Consider Dollar-Cost Averaging – If nervous about market volatility, invest gradually instead of all at once.
• Match Your Tolerance – Make sure you're invested in a diversified portfolio aligned with your long-term goals and risk tolerance.
• Get The Most Out of Your Cash – If you're ultra-conservative, laddered bonds or CDs can offer stability with better yields than savings accounts.

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While holding excess cash in high-yield savings accounts or money market funds offers short-term security and attractive yields, there are associated risks to keep in mind. By reallocating surplus savings into tax-advantaged accounts, diversified investments, or stable options like bonds and CDs, you can align your financial plan with your goals and risk tolerance. Understanding your cash needs for emergencies, short-term goals, or retirement, and maintaining a disciplined investment strategy, will help ensure your wealth grows effectively over time.

Whenever you're ready, we’re here to help:

Managing your own finances can be overwhelming. If you’d like to experience the benefits of working with a trusted advisor we invite you to schedule a no-obligation phone call to explore how working with Ark Royal might enhance your wealth and peace of mind.

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2700 Wycliff Road Suite 360

Raleigh, NC 27607

Tel. 919-710-8665
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