Cash gives you peace of mind, but your assets won’t grow, says a portfolio strategist.

Cash may seem like a safe place to store your money. But holding too much can hurt savers in the long run, especially if it comes at the expense of owning stocks, which are the portfolio’s growth engine.

“Cash gives you peace of mind, but it doesn’t grow your wealth,” Gargi Chaudhry, chief investment and portfolio strategist for the Americas at asset management firm BlackRock, said in an investment review earlier this month.

why?

Although cash is protected from stock market riots, it is endangered by the more insidious threat of inflation.

For example, $10,000 in cash stuffed under your mattress 30 years ago is worth about $4,700 today, with zero interest and after accounting for inflation, according to a BlackRock analysis. It turned out to be a loss of about 53%.

In other words, with that pile of money, you can buy about half of what you could have bought 30 years ago.

Meanwhile, according to BlackRock, a $10,000 investment in the S&P 500 U.S. stock index would be worth about $92,600, or a return of about 826%.

The inflation rate will reach its highest level in about 40 years in 2022. Although it has fallen significantly since then, inflation remains above the Federal Reserve’s long-term goal of about 2%.

“Having too much excess cash is not the best thing to do,” says Ujir Gomez, a certified financial planner and founder of Primeros Financial in Los Angeles. “If you keep everything in cash, you are effectively losing money year after year.”

He uses the example of a cup of coffee to illustrate the point to his clients.

For example, in the early 2000s, a cup of coffee cost about $1, but today it can cost as much as $5 to $6, depending on where people live, said Gomez, a member of CNBC’s Council of Financial Advisors.

“That cup of coffee isn’t going to cost $6 in 40 years, it’s going to cost a lot more,” Gomez said. “Forty or fifty years from now, you’re still going to want to buy that cup of coffee or take that vacation. How can you do that? It’s about investing.”

Of course, there are some caveats.

First, in general, households should not avoid cash altogether.

Financial experts say households need to have at least some cash on hand for emergencies or to save for short-term purchases like a car or home.

For example, Gomez says it’s generally unwise to let stock market fluctuations dictate your down payment for a home.

Households should also generally consider holding two to six months’ worth of additional cash in an emergency fund in case of unexpected financial shocks, he said. Some say more jobs should be retained, perhaps for those employed in industries where the risk of layoffs is relatively high, he said.

Additionally, not all cash is created equal.

In financial parlance, “cash” is an abbreviation for liquid, readily available funds that are conservatively invested and have relatively little market risk.

It can refer to different things. This could be a dollar bill stuffed under your mattress, money held in a checking or savings account at a traditional brick-and-mortar bank, a certificate of deposit, a money market fund, or a high-yield savings account offered by an online bank.

Some cash accounts, such as high-yield savings accounts and money market funds, typically pay relatively higher interest rates than other forms of cash.

For example, $10,000 invested in a money market fund 30 years ago still lost value to inflation, but it was worth less than the physical banknotes under your mattress, according to BlackRock. According to Blackfound research, it’s worth about $8,850, compared to $4,700.

Cash interest rates rose as the Federal Reserve raised its benchmark interest rate to combat inflation. But now interest rates are falling again, and savers can expect their cash yields to fall as well.

“If interest rates fall and inflation remains high, holding too much cash could mean losing purchasing power,” BlackRock’s Chaudhuri said.

For example, the top high-yield savings account on the market was paying almost 5.6% interest in July 2024, according to Bankrate. Currently, that percentage is found to be just over 4.2%.

“With the Federal Reserve yet to decide on a potential rate cut in December, yields are likely to remain relatively flat through early 2026 until clearer economic data emerges,” Bankrate financial analyst Stephen Cates, CFP, said in an email.

Investing can feel like a foreign concept to many people and can leave people paralyzed and unable to move forward, Gomez said.

Gomez said the first step is to evaluate your financial goals, or why you’re investing for a retirement that could be decades away. In that case, they can generally afford to hold more shares, he said. Alternatively, if it’s for more short-term goals, you should invest more conservatively, typically in cash or bonds, he explained.

“That will be the blueprint for what risks you can tolerate,” he says. “If the reason is you want to save for a home, that investment is going to be very different than saving for retirement.”

And the real investment comes down to diversification, he said. That means diversifying into U.S. and global stocks, for example, rather than relying too much on any one stock or industry, he said.

Financial advisors say investors can consider holding one-and-done mutual funds or exchange-traded funds, where professional asset managers handle investor diversification behind the scenes. Investors can also choose to automate the saving of their funds in that fund.

“At the end of the day, investing shouldn’t be boring,” Gomez said. “Usually you set it and forget it.”

“You don’t have to be perfect to start, but you need to start to be perfect,” he said.