I still remember the day in early 2023 when my high-yield savings account finally crossed 5% APY.
It felt like winning the lottery without buying a ticket. After more than a decade of near-zero rates, cash was suddenly… cool again. Money-market funds were printing money, CDs looked irresistible, and suddenly every investor I knew had a chunky cash pile they were proud of.
Fast-forward to today, December 2025, and the party is quietly winding down. Yields have slipped, the Fed just cut another quarter point, and that once-mighty 5% is now closer to 3.7%. Yet total money-fund assets are still sitting at a mind-boggling $7.65 trillion. That’s roughly 25% of U.S. GDP in cash-like instruments.
So here’s the million-dollar question (or rather, the multi-trillion-dollar question): how much cash actually belongs in your portfolio right now?
Why Cash Feels So Comfortable (But Can Quietly Hurt You)
Cash gives us something priceless: peace of mind.
It’s there when the car breaks down, when the job disappears, or when the market decides to throw a tantrum. I get it – I really do. I’ve been the guy staring at a plunging portfolio in 2020 thinking “thank heavens for that emergency stash.”
But here’s the less comfortable truth I’ve learned the hard way: cash has a hidden cost called opportunity cost. Every year you leave money sitting in 3–4% cash while inflation runs around 2–3% and the stock market has historically returned 7–10% after inflation, you’re quietly falling behind.
In my experience, too many investors treat cash as a permanent asset class rather than a temporary parking spot. That’s dangerous.
“Cash provides liquidity for emergencies and short-term expenses, and it may serve as ‘dry powder’ for investment opportunities. But while cash feels safe, it is rarely an appropriate long-term investment for most people.”
– Global fixed-income strategist at a major investment institute
The Expert Consensus: 2% to 10% Is the Sweet Spot
Ask ten different financial advisors how much cash you should hold and you’ll get answers ranging from “almost none” to “up to a year’s expenses.” But when you average out the thoughtful ones, a pattern emerges.
Most pros land somewhere between 2% and 10% of total investable assets in true cash or cash equivalents. The exact number depends heavily on your life stage:
- Young accumulators (20s–40s): Usually 2–5%
- Mid-career (40s–50s): Often 3–7%
- Pre-retirees & retirees: 5–10% (sometimes more for peace of mind)
Retirees tend to hold more because they’re drawing income and hate the idea of selling stocks in a bear market. Younger investors hold less because time is on their side – they can ride out volatility.
First Things First: Build Your Emergency Fund (Separate from Investments)
Before we even talk about “portfolio cash,” let’s get crystal clear on something important.
Your emergency fund is not part of your investment portfolio. It’s a completely separate bucket.
The classic rule is 3–6 months of living expenses. But honestly? In today’s world I think that feels a little light. The average duration of unemployment is now closer to 24 weeks. If you’re in a specialized field or a single-income household, 9–12 months isn’t crazy.
- High-yield savings account (FDIC insured, instant access
- Money-market account – Similar benefits, sometimes slightly higher yield
- Short-term Treasuries – Virtually risk-free, slightly less liquid
Keep this money outside your brokerage account so you’re not tempted to “invest” it on a whim.
The “Dry Powder” Debate: Should You Hold Cash to Buy Dips?
The Strategic Cash Sleeve – When It Actually Makes Sense
Some sophisticated investors – think hedge-fund manager Dan Niles recently – deliberately keep meaningful cash to deploy when markets get cheap.
It sounds brilliant in theory. Wait for the crash, buy low, become legend.
In practice? Most of us stink at it.
“Realistically, the average self-directed investor just has not been good at buying the dip. They freeze, they wait for even lower prices, and they miss the bottom.”
– Certified Financial Planner, Michigan
That said, a small strategic cash sleeve – say 3–5% – can be useful for rebalancing without forced selling. Vanguard often starts model portfolios with 3–5% cash for exactly for this reason.
It lets you:
- Rebalance calmly instead of panic-selling
- Take advantage of tax-loss harvesting opportunities
- Cover minor corrections without disrupting long-term allocation
Where to Park Your Portfolio Cash Right Now
Yields aren’t what they used to be, but you can still do better than a 0.01% bank savings account.
Here are the options I’m watching closely in late 2025:
| Instrument | Current Yield (approx) | Duration | Best For |
| Money Market Funds | 3.7–4.1% | Ultra-short | Daily liquidity |
| 0-3 Month T-Bills | ~3.85% | 1–3 months | Safety + slight boost |
| Ultra-Short Bond ETFs (e.g. VUSB style) | 4.1–4.3% | ~1 year | Slightly higher yield, still very safe |
| Investment-Grade Corporate Bond Ladder | ~4.5% | 5–10 years | Lock in yield before rates fall further |
Personally, I’ve been moving some cash into ultra-short bond funds and a small 10-year investment-grade corporate ladder. It still feels conservative, but it beats letting inflation eat 3% real return every year.
The Biggest Mistake I See Investors Making Right Now
They’re treating 2023–2024 cash yields as the new normal and refusing to deploy.
Look, I loved 5% cash as much as anyone. But clinging to it while the Fed is clearly in cutting mode is like refusing to leave a great party at 2 a.m. because the music is still good. Eventually the lights come on and you’re standing there holding an empty cup.
History says markets usually rally after the Fed starts cutting – especially if the economy avoids recession. Waiting for “more certainty” often means missing the move.
So… What Should You Do Today?
Here’s my personal framework (your mileage may vary):
- Confirm your emergency fund is fully stocked and separate.
- Aim for 2–7% cash in your actual investment portfolio (higher if you’re within 5 years of retirement).
- Put that portfolio cash to work in ultra-short Treasuries, top-tier money funds, or ultra-short bond ETFs.
- Consider gradually deploying excess cash into quality stocks and longer bonds over the next 6–12 months.
- Revisit every quarter – cash allocation isn’t “set it and forget it.”
Cash isn’t trash. But too much cash, held too long, becomes a silent wealth destroyer.
Find your number. Sleep well knowing you’re covered for emergencies. Then let the rest of your money do what it’s supposed to do – grow.
Because in the long run, time in the market still beats timing the market – or parking on the sidelines in 3.7% cash.
