Too Much Cash? Tips for Reinvesting Your Money

March 9, 2023
When it comes to long-term growth, cash isn't king. Learn why it might be worth the effort to reinvest your money through portfolio rebalancing and reentering the market gradually.

In the first quarter of 2022, U.S. households held a staggering $17.9 trillion in cash and cash equivalents—up roughly 30% from Q1 2020. Some of this is cash accumulated during the pandemic; however, rampant inflation, rising interest rates, a volatile stock market, and the war in Ukraine have subsequently left investors unsure of how—or whether—to invest it.

"When people are inundated with uncertainty, be it external news or internal worries, they often freeze up," says Mark Riepe, head of the Schwab Center for Financial Research. "While cash can be a relative safe haven, its returns don't always keep pace with inflation—let alone stocks and bonds—so your uninvested cash can lose value over time."

Safety at a price

Over the past two decades, cash returns underperformed equities and bonds—and were even too low to maintain purchasing power vis-à-vis inflation.

After 20 years, the large-cap equity was valued at $1,296,888, a moderately allocated portfolio at $760,406, fixed income at $368,223, and cash equivalents at $254,670. The amount needed to maintain purchasing power of the original investment was $329,310.

Source: Morningstar, Inc., based on the copyrighted works of Ibbotson. All rights reserved. Used with permission.

The chart illustrates the growth in value of $200,000 invested in various financial instruments from 12/31/2002 through 12/31/2022. Results assume reinvestment of dividends, capital gains, and coupons, and do not include taxes or transaction fees, which would lower the value. Indexes are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. The indexes representing each asset class are: S&P 500® Index (large-cap stocks); Russell 2000® (small-cap stocks); Ibbotson Intermediate U.S. Government Bond Index (bonds); and Ibbotson U.S. 30-day Treasury bills (cash equivalents). Purchasing power is represented by the change in the Consumer Price Index for All Urban Consumers (CPI-U). The moderate allocation portfolio is 35% large-cap equity, 10% small-cap equity, 15% international equity, 35% fixed income, and 5% cash, using the indexes noted. Past performance is no guarantee of future results. The example is hypothetical and provided for illustrative purposes only.

To use cash more effectively and help overcome such concerns, Mark suggests that most investors:

  1. Hold enough to cover emergencies and near-term expenses: For nonretirees, that means setting aside three to six months' worth of essential living expenses in a relatively safe, liquid account, such as an interest-bearing checking account or money market fund. Retirees, on the other hand, can avoid selling investments at a loss during a downturn by keeping one year's worth of expenses in cash reserves and two to four years' worth in more conservative investments, like short-term bonds.
  2. Balance risk and return: The percentage of cash investments in your portfolio—such as high-yield checking or saving accounts, money market funds, or certificates of deposit—could range from 5% (for younger, more aggressive investors) to 30% (for those who need the money soon, have little tolerance for risk, or are relatively far along in their retirement). Any cash exceeding those amounts could be invested for potential growth and higher income, for instance by buying lower-risk assets like short-term bonds and bond funds.

Additionally, consider a go-slow approach. "Sometimes, paralysis comes from feeling the need to invest all that excess cash at once," Mark says. "But even bringing your portfolio back to its target allocations can be far more productive than sitting on the sidelines."

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Supporting documentation for any claims or statistical information is available upon request.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Past performance is no guarantee of future results.

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs and, when a nonretirement account is rebalanced, taxable events may be created that may affect your tax liability.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a money market fund.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.

Investing involves risk, including loss of principal. 

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Small-cap stocks are subject to greater volatility than those in other asset categories.

Indexes are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. For more information on indexes please see

Schwab does not recommend the use of technical analysis as a sole means of investment research.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.