While investment growth often receives the most attention, protecting what you've built requires thoughtful planning for both opportunity and uncertainty. Cash may not be the most exciting part of a portfolio, but it can play a critical supporting role in preserving flexibility, protecting long-term investments, and supporting financial resilience.
“As your wealth grows, so does the importance of protecting it – and one of the most effective, and often overlooked, ways to do that is through a well-considered approach to cash,” said Rob McKearin, Head of Premier Client, PNC Wealth Management.
A thoughtful cash strategy involves balancing three competing priorities: liquidity, return, and risk. Cash that is readily accessible may provide flexibility but often generates lower yields. Cash invested or positioned for greater income potential may involve less immediate access or greater risk. Understanding how these three factors work together can help investors determine how much cash to hold – and where to hold it.
Cash as a Financial Buffer
Market volatility, economic shifts, and unexpected life events are inevitable. Long-term investment strategies can help weather these periods of uncertainty, but access to cash can make a meaningful difference.
“While it does make sense to invest cash in longer-term options that generate returns and income, we believe having cash readily available is also important for short- and mid-term needs,” said McKearin.
Having the right amount of cash on hand may:
- reduce the need to sell investments at inopportune times;
- provide flexibility to cover expenses or fund opportunities; and
- help you stay disciplined when markets are volatile.
“In this way, cash acts as a buffer – allowing the rest of your portfolio to remain aligned with long-term goals rather than reacting to short-term pressures,” he added.
Three Cash Buckets
McKearin advises clients to segment their cash pool into three buckets: operating, reserve, and strategic.
- Money You Need to Live Your life (Operating Cash) is for day-to-day needs and expenses, and requires quick, easy access.
- Money That Protects You (Reserve Cash) covers medium-term needs and unexpected expenses such as a temporary job transition, significant home repairs, family emergencies, healthcare expenses, or other unforeseen financial events.
- Money That Should Work Harder (Strategic Cash) is for known future liquidity needs such as upcoming tax payments, tuition expenses, a home purchase, business investments, philanthropic commitments, or other planned expenditures.
“Taking this segmented approach helps ensure you have cash when you need it, while putting excess liquidity to work more effectively,” McKearin said. “With each option, there are various considerations in terms of risk tolerance, return and income expectations, and the timely ability to access liquidity.”
These decisions are often most effective when considered in the context of a broader wealth plan, where liquidity needs can be evaluated alongside investment objectives, risk tolerance, tax considerations, and long-term financial goals.
Where You Hold Cash Matters
Once you’ve identified how much cash to hold, deciding where to keep it becomes an important part of protecting both access and principal.
A checking account is your primary resource for operating cash – great for day-to-day liquidity and immediate access. But it’s not built for returns. A good rule of thumb is to keep just enough there to cover near-term spending, so excess cash isn’t sitting idle.
For larger, less frequent expenses, savings or money market accounts can provide easy access to your reserve cash while also being able to generate returns. Plus, they come with FDIC coverage (within allowable limits), adding an extra layer of security.
If your goal is to put cash to work while maintaining some flexibility, CDs, Treasury securities, and other short-term fixed income investments may be appropriate considerations for strategic cash. They can be a smart fit for planned outflows, whether that’s a tax payment, future tuition expenses, or a planned investment. Depending on the vehicle selected, investors may benefit from enhanced income potential, principal preservation features, and varying levels of liquidity. FDIC insurance applies to eligible bank deposit products, such as CDs, up to applicable limits, while securities and other investments are not FDIC insured and may involve investment risk.
“In short: match the purpose of your cash to the right vehicle,” McKearin notes. “The difference can meaningfully impact both your liquidity and your return.”
Cash as a Decision-Support Tool
Beyond covering expenses, cash can give you the ability to act deliberately rather than reactively.
During periods of market volatility, having sufficient liquidity can help you:
- avoid selling long-term investments at lower values;
- rebalance or invest selectively when opportunities arise;
- stay aligned with your strategy rather than responding emotionally to market swings; and
- stay invested through market cycles, so you’re less likely to miss out on potential rebounds and long-term market gains.
Similarly, for business owners or individuals considering large purchases or investments, cash on hand can enable timely decision-making without added pressure.
In some situations, investors may also consider securities-based lending as a way to access liquidity without necessarily selling long-term investments. While this approach may not be appropriate for everyone and involves risks and borrowing costs, it can provide an additional source of flexibility as part of a broader liquidity strategy.
Keeping Cash Aligned With Your Overall Wealth Strategy
As your financial life evolves, so should your approach to liquidity. Major life events, changes in income, or shifts in market conditions can all affect how much cash you may want to hold – and how you structure it.
Working with an advisor and regularly reviewing your cash position alongside your broader financial plan may help ensure:
- your liquidity matches your current and anticipated needs;
- excess cash is deployed intentionally; and
- your portfolio remains aligned with your long-term objectives.
Clarity Through Liquidity
A purposeful cash strategy is not simply about where cash is held. It is about aligning liquidity, return expectations, and risk tolerance with your broader financial goals. By separating cash into operating, reserve, and strategic roles, investors may be better positioned to preserve flexibility, maintain confidence during periods of uncertainty, and put excess liquidity to work intentionally.
