What Percent of Your Portfolio Should Be in Cash?

Guitar photographer / Shutterstock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

If you’ve ever wondered what percent of your portfolio should be in cash, you’re not alone. The answer depends on your age, goals and tolerance for risk — but most experts recommend keeping somewhere between 5% and 15% of your portfolio in cash. Retirees may want more, while younger investors can get by with less.

Cash might not deliver the big returns of stocks or bonds, but it plays an important role in your financial plan. It provides stability, gives you immediate access to money in an emergency and lets you pounce on investment opportunities when markets dip.

Let’s break down how much cash to hold, why it matters and how to make sure it works for you.

Why Cash Still Matters in a Portfolio

In today’s investment world of stocks, ETFs and crypto, cash can feel boring. But boring isn’t a bad thing when it comes to financial security.

Here’s why cash belongs in nearly every portfolio:

• Liquidity: You can access cash instantly to cover bills, medical costs or urgent repairs without selling investments at a bad time.
• Stability: Cash doesn’t rise and fall with the stock market, making it a safe cushion when things get volatile.
• Flexibility: With cash, you’re in a position to buy investments “on sale” during downturns.

A 2024 Federal Reserve report revealed that only 63% of adults could fully cover a $400 emergency expense using cash or its equivalent, underscoring why having accessible cash — or liquidity — is so crucial.

Emergency Fund vs. Portfolio Cash

Not all cash is created equal. You should think of your emergency fund and your portfolio cash as separate tools with different jobs.

Quick tip: An emergency fund is your safety net. Portfolio cash is your dry powder for both stability and opportunity.

General Guidelines: How Much Cash Should You Hold?

So, how much cash should you actually keep? It depends on where you are in life.

• Early career (20s-40s): 5 to 10%
  You’re earning income, so you can afford to keep a smaller portion in cash. The focus here is growth.
• Pre-retirement (50s): 10 to 15%
  As retirement approaches, you’ll want more cash on hand to balance risk and cover near-term expenses.
• Retirement (60s-70s+): 15 to 25%
  Once you stop earning a paycheck, cash provides a buffer so you don’t have to sell investments during downturns.

A Fidelity Retirement Study found that retirees who held 1 to 2 years of expenses in cash were far less likely to outlive their savings, since they could avoid withdrawing during market crashes.

Risks of Holding Too Much — or Too Little — Cash

Holding some cash is smart. But just like with investing, balance is everything.

• Too little cash: You may be forced to sell investments at the worst time — like during a market downturn.
• Too much cash: Inflation erodes its value. If inflation is 3% and your cash earns 2%, you’re losing money in real terms.

Federal Reserve data shows that stocks have returned about 10% annually on average over the past century, while cash has barely kept up with inflation at under 1% real return. That’s the opportunity cost of being too conservative.

Retirement Safety: Why Cash Is Critical

Retirement brings unique risks, especially sequence-of-returns risk — when poor returns early in retirement drain your portfolio faster.

Cash helps protect against this risk:

• Keep 1 to 3 years of expenses in cash to avoid selling stocks when the market is down.
• Use bond ladders or CDs for predictable cash flow.

Retirees who used a cash buffer reduced the risk of running out of money by more than 20% compared with those fully invested.

Smart Cash Strategies

There isn’t one answer for how much cash to keep on hand. The amount of cash you need depends on your age, lifestyle, health and income needs. Here are some general strategies:  

1. Cash Staging

Divide cash into “time buckets” based on when you’ll need it:

• 0-1 years: High-yield savings or money market accounts.
• 1-3 years: CDs or short-term bonds.
• 3-5 years: Intermediate-term bonds or bond ladders.

2. The Barbell Strategy

Split your cash into two buckets:

• Safe cash: For emergencies and daily needs.
• Opportunity cash: For investing during downturns.

This approach is even used by Warren Buffett. Berkshire Hathaway held more than $150 billion in cash and T-bills in 2023, ensuring liquidity when markets offered bargains.

3. Rebalancing

Cash gives you flexibility to rebalance your portfolio. Instead of selling in a panic, you can buy low when markets are struggling.

Best Places to Hold Cash

Not all cash accounts are equal. Here are some of the best options:

As of July 2025, high-yield savings accounts are paying more than 4% APY, according to FDIC data, compared to the national average of just 0.45%.

Setting Your Cash Target: Step-by-Step

1. Define short- and medium-term needs. List expected expenses over the next five years — home repairs, travel and medical costs.
2. Assess retirement timeline. Factor in income from Social Security, pensions and required withdrawals.
3. Tailor to risk tolerance. Some people feel comfortable with three months of cash; others want 12. Go with what lets you sleep at night.

Sample Cash Allocation by Age

Final Take to GO

So, what percent of your portfolio should be in cash? For most investors, the right range is 5 to 15%, with higher allocations for retirees who need stability and income. Cash won’t make you rich, but it will keep you flexible, stable, and prepared for both emergencies and opportunities.

The key is finding balance: enough to protect yourself, but not so much that inflation erodes your long-term wealth.

Next, explore related strategies: Best High-Yield Savings Accounts or How to Build a Bond Ladder to make your cash work harder.

Information is accurate as of Aug. 19, 2025.

Share This Article: