The trader works on the floor of the New York Stock Exchange on April 10, 2025.
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Investors may feel the urge to move to cash amid the recent turmoil in the stock market. Cash may feel safer than stocks, but it can also pose a risk to long-term savers, says the financial advisor.
Cash is significantly more volatile than stocks in the short term, as held in high-yield bank savings accounts and money market funds, experts said.
However, cash has historically produced lower returns than stocks over the long term. Holding more cash than you need – increases the risk that you may not be able to achieve your investment goals rather than investing.
Results: Cash-heavy investors may find it difficult to achieve their long-term investment goals. As a result, it is written in a paper that analyzes stock and cash revenues.
The US equity benchmark has fled the stock for perceived safe shelter, with tariffs and trade declarations from the Trump administration and retaliation measures announced by major trading partners like China.
Following the White House announcement of country-specific tariffs earlier this month, the S&P 500 had the worst two-day stretch from the early days of the Covid-19 pandemic, losing about 11%.
Meanwhile, on April 7, the highest volume of 401(k) planned transactions was seen since March 12, 2020, according to Alight Solutions, the administrator of retirement plans. Approximately 94% of revenue moved to conservative assets such as Money Market, bonds and stable value funds.
Pros and cons of cash
Cash has several advantages.
For example, even if there is a dramatic change in the stock market, when investors need money for emergencies and large-scale purchases, it’s there, said Carolyn McClanahan, a certified financial planner at Life Planning Partner in Jacksonville, Florida.
“Everyone has to have cash and stock,” wrote in an email, McClanahan, a member of CNBC’s Financial Advisors Council.
However, according to Morningstar, cash “has a long history of offering negative “real” returns,” which means returns after considering inflation.
In other words, consumers who hold a 100% portfolio in cash actually lose their wealth over time after taking into account inflation, experts said. If cash interest rates do not correspond to rising prices, consumers lose their purchasing power.
Meanwhile, stocks have high growth potential, particularly over the long term, but also come with risk, McClanahan said.
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“The ups and downs in the market can be nauseous. If you need money and can’t survive the market slump, you may have to incur a loss for the bank,” says McClanahan.
“All portfolios need to diversify beyond safe and dangerous assets based on the financial and risk-taking ability of our clients,” she writes.
How to think about cash and stock mix
Investors still in the “accumulation” savings stage, those in the working year, are still saving some of their income — they need to hold enough cash for an easily accessible fund emergency, McClanahan said.
She also said she will need to hold cash needed to purchase over the next five years, including down payments for homes, car purchases and tuition fees.
The rest should be allocated to stocks and bonds based on the horizon of that time, McClanahan said, “the financial and psychological ability to take risks.” For example, someone who has 10 years before retirement needs to have a lower share of their stock portfolio than someone who has 30 years after retirement.
If you need to start withdrawing money from your portfolio, retired people should keep enough money in cash, short-term debt and certificates of deposit in addition to their five-year income needs.
The rest should be in a diverse portfolio of bonds and equities, she said.
Even retirees generally need to allocate a portion of their portfolio to stocks. They can resort to portfolios to fund their lifestyles for over 30 years. That is, experts say, investing growth is necessary to ensure that money is not run out.
All investors need an investment strategy that spells out “amounts allocated to stocks, bonds.” [bonds]and cash, they need to stick to this investment policy throughout all markets.
