November 2026 Newsletter
The Role of Cash
Clients who have worked with us for a while know we usually encourage them to keep cash to a minimum.
For families working toward financial independence, the primary goal is to accumulate assets likely to grow faster than inflation, increasing their purchasing power. Cash, especially on an after-tax basis, is not a good asset class for this goal because it often loses purchasing power over time.
But cash does have a very important role in a financial plan. It keeps money you will need soon, or might need suddenly, away from your long-term investments.
So before deciding how much cash to hold, it helps to be clear about what it is for.
When Cash is King
A financial plan must account for unexpected shocks. No matter how many events are planned for, life has a habit of surprising us. A good plan has to absorb these shocks.
A breadwinner’s income can shrink, a large unexpected bill can arrive, or illness can strike. When you’re already drawing an income from your portfolio, even a market decline can introduce uncertainty that needs to be managed.
If you haven’t set aside cash for these scenarios, you may need to sell long-term investments while prices are down or pause important contributions. Admitting you didn’t have a plan for these situations can also add panic to an already stressful time.
Conversely, if you set money aside in advance, you can draw on it with confidence because it already has a plan and a purpose.
The benefit clients notice most is peace of mind, knowing money is within easy reach and won’t be affected by investment markets.
How Much Is Enough
The right amount of cash to hold depends on your household, and we usually look at three things.
First are upcoming costs you already know about, such as a new car or a home renovation planned in the next year or two. Since you’ll need that money soon, it makes sense to keep it in cash.
The second is an emergency fund for the things nobody plans. Its size depends on how secure and varied your income is (two incomes or one, a salary or your own business, one employer or several), who depends on that income, and how quickly you could cut spending if you had to. We would rather this amount felt slightly larger than strictly necessary.
The third applies if you are drawing an income from your investments. Here the cash covers a period of spending, so that in a market decline your income comes from the cash pot instead of investments sold at a low point.
Working through these amounts doesn’t always mean you need more cash. Some cautious clients are holding far more than these jobs need. When you define and think through the role of cash, it becomes easier to invest the rest for the long term with confidence.
Putting It Into Practice
Every household is different, so how this works for you depends on your circumstances and goals. The right amount of cash for a young family with two salaries will look different from what a retired couple drawing on their investments needs.
When we next meet, we’d be happy to check whether you have the right amount set aside for each of the jobs above and which accounts it should be kept in. That way, your cash can do its job while the rest of your money works for the long term.
If you have any questions before then, please don’t hesitate to reach out. We’re always happy to help.
Compliance disclaimers:
“The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested. Past performance should be used as a guide only and is not a guarantee of future performance.”
“Different investors will view these trade-offs differently depending on their objectives, time horizon, and attitude to risk. If you would like to discuss how this relates to your own circumstances, please speak to us”
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