Steady Wealth Project

In personal finance, cash gets dunked on. “Invest everything.” “Don’t let money sit.”

I get it. Over the long run, cash usually loses to inflation and it almost always loses to equities.

And still, I keep about $150,000 in cash. Not because I’m confused about “cash drag,” but because right now cash is buying me something I value more than squeezing out maximum returns.

A little context if you’re new here:

I’m 31, single, and I work in corporate strategy

Net worth is about $700k

I rent today and I have no debt

My long term portfolio is mostly low cost index funds (VOO, VBK, VXUS) plus real estate exposure (VNQ and a real estate bond)

When I say “cash,” I don’t mean a giant checking account. It’s mostly money market or brokerage cash earning a solid short term yield, plus a small amount in checking for day to day life.

The real reason I hold cash: it buys options and flexibility.

I’m not holding cash to time the market. I’m holding cash to reduce pressure.

Housing flexibility. I rent right now, but I might buy again. Having cash ready means I can move quickly if the right situation shows up, and I’m not forced to sell investments in a down market to fund a down payment.

Career optionality. The most underrated form of financial freedom is the ability to say “no” or to take a risk. A big cash cushion makes job changes less stressful, gives you leverage in negotiations, and makes it easier to walk away from something that feels wrong.

With all the news of corporate layoffs it also gives me piece of mind that if I were to get laid off, I have a solid runway ahead of me.

Volatility insurance for my brain. I can handle market swings, but I’m still human. When the market is down and life throws you a surprise expense, it helps to know your cash is still there. That makes it easier to stay invested and avoid panic decisions.

Smoother life. Moving costs, car stuff, family travel, random expensive months. Cash makes life less spiky, and less spiky life makes consistent investing easier.

And here’s the part people miss: having cash can actually support an aggressive long term portfolio. Because I know I have liquidity, I’m less tempted to sell equities when things get ugly.

The downside, and why I accept it

Yes, there is a cost. The simplest way to think about it is opportunity cost.

Pick two return assumptions:

1. what you might earn in a long term stock portfolio (say 7% in an average year, purely as an example)
2. what you’re earning on cash or money market (say 3%, again as an example)

The difference is 4%. Multiply that by the amount you’re holding in cash.

In my case:

$150,000 in cash

return gap of 4% (7% minus 3%)

opportunity cost = $150,000 × 0.04 = $6,000 per year

That is real money. And it’s useful to actually run that math, because it turns “cash drag” from a vague fear into a clear tradeoff.

Then the question becomes: do the benefits of holding cash outweigh that cost?

For me, right now, the answer is yes. If cash buys me better decision making, less pressure, and more flexibility around housing and career, then paying something like $6k a year can be worth it. Not forever, but for this season.

Another way to say it: I’m willing to give up some expected return in exchange for optionality and peace of mind, because those things help me stick to the overall plan.

My guardrails so cash doesn’t turn into fear (this only works if you have rules).

1. Most new money still gets invested. Cash is not an excuse to pause the plan.
2. I revisit the target once a year. Not every week.
3. Cash earns something. Checking is for bills. Everything else sits somewhere with a real yield.

Bottom line

Keeping $150k in cash is not “optimal” in the narrow sense.

It is optimal for me right now because it reduces pressure, increases flexibility, and makes my overall plan more durable.

And durability beats perfect.