Fidelity Says This Is a Surprising Risk of Holding Too Much Cash — Do You Have Too Much?
Written by
Gabriel Vito
Edited by
Zuri Anderson
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Cash feels like the safest bet to most people. It’s steady, predictable and always there when you need it. But according to Fidelity’s research, holding too much cash could quietly erode your wealth rather than protect it.
With interest rates falling and inflation still creeping up, the value of cash is shrinking. While having some cash on hand is necessary for emergencies, Fidelity’s long-term data shows that cash has historically been the worst-performing asset class, significantly lagging behind stocks and bonds even during volatile market conditions.
As Melanie Musson, a finance expert with InsuranceProviders.com, explained: “Cash has value but definitely does not increase in value, and it almost certainly will decrease in value.”
So, is cash really as safe as it seems? Fidelity’s research suggests otherwise. Let’s dive deeper to find out why.
Investment Alternatives to Holding Too Much Cash
Stocks: The Growth Machine
Fidelity’s data makes one thing clear: Stocks have historically outperformed cash, even during volatile markets. Their analysis shows that a $5,000 annual investment in stocks from 1980 to 2023 (even at market peaks) would have grown exponentially, while the same investment in cash would have resulted in a fraction of that return.
The long-term trend is even more striking. According to data from Ibbotson Associates, large capitalization stocks (think S&P 500) returned 10.4% annually from 1926 to 2024, compared to 5.0% for long-term government bonds and just 3.3% for T-bills.
Robert R. Johnson, professor of finance at Creighton University, puts that into perspective: “One dollar invested in the S&P 500 at the start of 1926 would have grown to $18,212 (with all dividends reinvested) at the end of 2024. That same dollar invested in T-bills would have grown to $24.”
The difference isn’t just significant — it’s the difference between building wealth and barely keeping up.
Bonds: The Sleep-Well Option
Not into the stock market rollercoaster? Bonds are your steady, drama-free alternative.
Like cash, bonds pay interest. Unlike cash, they have the potential to appreciate and lock in higher yields. Whether you choose individual bonds, bond mutual funds or ETFs, they offer a reliable way to grow your money without the whiplash of stocks.
For those who love their money market funds because they generate interest, bonds are a natural next step — same concept, better return potential.
Finding the Balance
Let’s be clear: Cash isn’t the enemy. It’s essential for covering emergencies and short-term expenses. But keeping too much of it can cost you opportunities to grow your wealth.
Fidelity’s research shows that while some cash is necessary, long-term growth comes from investing in stocks and bonds.
“Cash should primarily be used for emergency savings. Once you have at least three months of expenses set aside (or 12 months for a conservative approach), excess cash becomes a drag on wealth.” said Justin Haywood, certified financial planner (CFP) and president and co-founder of Haywood Wealth Management. “Money beyond short-term needs should be working for you through investments like stocks, ETFs and mutual funds.”
The takeaway? Keep enough cash for emergencies, but begin to invest once you’ve established your financial cushion. If your wealth isn’t growing, it’s losing value.
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