With uncertainty in the financial markets and banking world, it might make sense to keep cash safe by letting it sit idle. While keeping cash readily available provides a sense of security, it’s important to recognize that holding on to excess funds can lead to missed opportunities for growth and potential erosion of purchasing power. 

Let’s look into the concept of idle cash and explore the hidden costs associated with letting your money remain stagnant. By understanding the potential drawbacks, you can make informed decisions about how to optimize your cash holdings and keep your money working for you.

Origins of Idle Cash

Idle cash can build up in a variety of ways. Young professionals earning more money than they are used to can let cash pile up in their savings because they don’t know how to make it work for them. Experienced investors may not even realize they have idle cash sitting around from dividend payouts that aren’t automatically reinvested. Cash from passive revenue streams, such as rental properties, may not be integrated into your investment portfolio and could be actively dragging down your return potential.

Regardless of where the cash is coming from, having too much of it idle in your portfolio is not a wise financial strategy. There is no right number and it is different for every person and family, but we believe one should have a cash contingency target to keep in reserves based on your unique circumstance. Other than this backup cash, the amount of idle money in your portfolio should be limited, with additional funds being productively put to work.

Stay on Top of Your Accounts

Do you know how much idle cash you’re carrying? If you own mutual funds, you may consider the money you put into the funds as being invested, but did you know that these funds usually keep about 5% of the portfolio in cash and cash equivalents? Evaluate your portfolio as soon as possible, because the excess cash sitting in your savings is losing the fight against inflation.

Inflation has increased costs, and the value and purchasing power of $100 today is very different from that of 30 years ago. Even with rising interest rates, idle cash is still not earning nearly enough to effectively combat inflation and holding on to excess cash for the long term is effectively minimizing the potential upside of your hard work. What can you do with the extra cash? How do you reinvest it so you maximize its return?

A Better Alternative

The Rosemeyer Management Group team members strive to find the best way to put your money to work and align your investments with your current needs and future goals. Whether you’re saving for your child’s education, strengthening your retirement accounts, or planning to purchase a new home, we want to see your investments reach their potential.

It’s important to understand there are more efficient ways to handle cash than simply stockpiling it in a checking or savings account. If you need liquidity but still want to put your cash to work, consider investing in short-term securities. These types of investments can be liquidated in less than a year but earn better returns than money collecting dust in your savings account.

Municipal bonds, real estate, and savings bonds are all excellent long-term investment options if you’re in a position to limit access to your funds for an extended period of time. These types of investments require commitment but can be lucrative if held until maturity.

How We Can Help

Recognizing the potential loss of holding on to idle cash and taking steps to optimize your cash holdings helps you maximize your financial potential and make your money work harder for you. Whether it’s investing, exploring high-yield savings accounts, or diversifying your portfolio, there are various strategies available to minimize the impact of idle cash and increase your financial gains. 

If you’re ready to explore your options, we at Rosemeyer Management Group would love to talk. Schedule an introductory appointment online or by calling us at 608-348-2274. For any questions, feel free to reach out to me at: carter@rosemeyermg.com.

About Carter

Carter Klaas is an investment advisor representative at Rosemeyer Management Group, an SEC Registered Investment Advisor based in Platteville, WI. Carter focuses on the people behind the dollars and cents, forging long-lasting relationships with his clients. Using clear, measurable financial goals, Carter works to bring financial confidence to those he calls clients through education, intentional planning, and a strong relationship built on mutual trust. By planning comprehensively with investment strategies, risk management strategies, retirement planning, tax planning, and estate planning, Carter makes sure all the pieces of a person’s financial “puzzle” fit and work together for their goals. He is dedicated to personalized planning because he realizes that the wide-ranging experiences and emotions revolving around money demand a custom-fit plan. Carter has a bachelor’s degree in personal finance and financial planning from the University of Wisconsin-Madison.
 

When he’s not at work, Carter enjoys spending time with his wife, Natalie, and their Goldendoodle puppy, Willow. You’ll find them taking walks, drinking wine, bike rides, and being near the lake. To learn more about Carter, connect with him on LinkedIn.