Holding cash can feel reassuring, providing flexibility and a sense of security. Over time however, excess cash can quietly become a drag on your broader financial strategy.
A dollar today will almost certainly buy less in the future, even if your account balance remains unchanged. Interest earned in savings accounts can help soften this effect, but when inflation outpaces interest rates, the real value of your cash is going backwards.
In other words, playing it too safe for too long can result in a loss of spending power, even though nothing appears to have gone wrong.
The opportunity cost of staying in cash
Cash is one of the lowest-risk assets available, but it is also one of the lowest-returning over the long term. Growth assets such as shares have historically delivered stronger returns over extended periods, albeit with higher short-term volatility.
The difference this can make compounds over time. Consider two investors who each set aside $20,000. One leaves it in cash earning 4 per cent per annum. The other invests in a diversified portfolio targeting 7 per cent per annum.
After three years, the difference is noticeable but modest. Over 25 years, however, the gap becomes substantial, driven by compounding. Higher returns generate more growth, which then compounds again.
While markets fluctuate and returns are never guaranteed, remaining overly conservative can mean missing opportunities that are difficult to recapture later.
How much cash is enough?
As a general guide, holding the equivalent of three to six months of living expenses in cash is considered appropriate for most households. This provides a buffer for unexpected events without forcing you to sell investments at an inconvenient time.
Beyond this level, excess cash may be better viewed as a strategic asset that needs a purpose, rather than a default holding.
What could you do with surplus cash?
Once your emergency reserve and short-term needs are covered, surplus cash can often be deployed more effectively elsewhere, depending on your goals and circumstances.
Options may include reducing non-deductible debt to improve cash flow, making additional superannuation contributions to take advantage of tax efficiencies, or investing in a diversified portfolio aligned with your longer-term objectives.
The right mix will depend on your time horizon, broader wealth strategy, and comfort with risk. What matters most is being deliberate. Cash should be held by design, not by default.
Source: This article was originally published on Advisely with the title “Is your cash costing you?” on 14 January 2026.
Finding the right balance
Moving money out of cash can feel uncomfortable, particularly during periods of uncertainty. However, a well-considered strategy can help balance liquidity, growth, and risk, ensuring your money is working as hard as you are.
Contact us to review how your cash fits within your overall strategy, speak with one of our advisers to explore your options.
This information provided in this article is general advice only and has been prepared without taking into account your own objectives, financial situation or needs. Before making a financial decision based on this advice, you must consider whether it is appropriate in light of your own needs, objectives, and financial circumstances, and where relevant, obtain personal financial, taxation or legal advice. Where a financial product has been mentioned, you should obtain and read a copy of the Product Disclosure Statement (PDS) prior to making any decisions about whether to acquire a product.