We know it’s important to have cash available for our everyday spending needs as well as the inevitable “rainy day.” While it may seem like a good problem to have, having too much of your savings sitting in cash can be an issue, especially when you are investing for long-term goals such as retirement..
To help you determine how much cash makes sense for your situation, we use the acronym "USES":
How much? In general, we recommend about three to six months' worth of living expenses
How much? The amount would be based on the goal.
How much? If you’re retired, we recommend about a year’s worth of income needs from your portfolio in cash. If you’re still working, we recommend about one to two months’ worth of living expenses in cash, refreshed by your paycheck.
How much? In general, we recommend up to 10% of your fixed income in cash, which would be approximately 5% of your overall portfolio.
Some people hold too much in cash, viewing it as a safe haven against the risk of a market decline. But cash is not risk-free: If it’s designated for a long-term goal such as retirement or education, the biggest risk you face isn’t a temporary pullback in the market – it’s the possibility of not reaching your goal.
By ensuring you have each of the USES areas covered, you can better focus on your longer-term goals, including preparing for retirement and paying for education. Schedule some time now with your financial advisor to review your USES of cash.