Cash Isn’t a Strategy — But It’s Not Useless Either
Cash Isn’t a Strategy — But It’s Not Useless Either
There are two types of people when it comes to cash.
Type 1: “Cash is trash! You’re losing money to inflation — invest everything.”
Type 2: “I keep everything in cash. It’s safer that way.”
Both of these are wrong — for different reasons.
Cash isn’t going to build long-term wealth. But it isn’t worthless either. In fact, when used strategically, cash can be one of the most powerful tools in your financial plan.
It won’t make you rich — but it can stop you from making wealth-destroying mistakes.
Let’s dig into how smart investors — especially retirees and business owners post-sale — use cash not as a growth engine, but as a financial shock absorber.
Why Cash Still Matters
Cash is often overlooked because it doesn’t grow. It doesn’t yield 8%. It doesn’t have exciting headlines or ticker symbols.
But it does something far more important in certain moments:
It buys you time.
Here’s what cash allows you to do:
Buy time in down markets
Cover large, unexpected expenses without liquidating investments
Avoid panic selling or emotional decisions
Sleep better when the market, news, or life feels uncertain
That’s why, at Compound Advisory, we often recommend that clients — especially those nearing or in retirement — hold 12 to 36 months of cash or cash-like assets.
Not because we’re scared of the market.
But because we want your long-term investments to breathe — and for you to breathe, too.
Meet Sam: The Retirement Stress Test
Sam retired in late 2019. He was excited, well-funded, and ready for the next chapter.
Then 2020 happened.
You know the story:
Global pandemic
Markets crashed over 30% in weeks
Fear everywhere
Panic headlines 24/7
Investors scrambling to sell “before it gets worse”
But here’s the thing: Sam didn’t flinch.
He didn’t call in a panic.
He didn’t ask to sell.
He didn’t change his plan.
Why?
Because he had two years of cash set aside. His income for the next 24 months was already in place — safe, accessible, and untouched by the chaos in the market.
His long-term investments took a hit (as all portfolios did), but he never had to sell a single stock to fund his life. That gave his portfolio time to recover — and it did.
By 2021, he was back on track. No losses locked in. No stress-induced mistakes. Just a plan that worked.
What Cash Can’t Do
Now, let’s be clear: Cash is not a long-term investment strategy.
Here’s what cash can’t do:
It won’t outpace inflation
It won’t compound over time
It won’t build wealth for the future
If you keep your entire portfolio in cash for too long, you’re quietly eroding purchasing power. You’re safe from volatility, but vulnerable to inflation.
That’s why cash isn’t a growth tool.
It’s a defense tool — a bodyguard, not a business partner.
The key is knowing how much to hold, when to use it, and where to keep it.
Our Approach: The Bucket Strategy
At Compound Advisory, we use a bucket strategy to help clients manage risk and sleep better in retirement. It breaks your money into three distinct time horizons:
Bucket 1: Short-Term Cash (0–2 Years)
This is where your lifestyle lives. Bills, travel, healthcare, horses — all of it.
It includes:
Cash in high-yield accounts
Money market funds
Short-term Treasury bills
CDs or cash-like alternatives
The goal here isn’t growth — it’s stability. This bucket allows you to fund your life without needing to pull from the market during a downturn.
Bucket 2: Intermediate-Term Assets (3–10 Years)
These funds aren’t needed immediately but should be reasonably stable.
It includes:
Bonds
Balanced or income-generating funds
Defensive equities or dividend-paying stocks
This bucket provides some growth, some income, and a middle ground between safety and returns.
Bucket 3: Long-Term Growth (10+ Years)
This is where your real wealth-building happens. It’s your future fund.
It includes:
Stocks
Alternatives
Private investments (where appropriate)
Real estate
This bucket is volatile — and that’s okay. You’re not touching this money for a decade or more. It has time to ride out the market cycles.
How Much Cash Should You Hold?
There’s no magic number, but here’s a general guideline we use for most clients:
Still working with stable income? 3–6 months of expenses
Retired or drawing from portfolio? 12–24 months (sometimes more)
Post-business sale or major liquidity event? Up to 36 months, depending on timing and goals
We tailor this based on:
Market conditions
Withdrawal needs
Health, family, and lifestyle goals
Your tolerance for risk (and your capacity to take it)
Where to Hold Your Cash
Not all cash is created equal. A good cash strategy includes yield and accessibility.
Best options for holding cash:
High-yield savings accounts
Money market funds (within a brokerage)
Short-term Treasury ETFs
CD ladders
Cash management accounts with FDIC sweep programs (like what we use at Compound Advisory through Altruist)
Avoid:
Letting large sums sit in checking accounts earning nothing
Overcomplicating with illiquid or gimmicky “cash alternatives”
Chasing yield with unnecessary risk
Final Thought: Cash Buys You Time
You don’t need to choose between “all in the market” or “everything in cash.” The right strategy is almost always somewhere in the middle — a plan that matches your goals, protects your downside, and gives your long-term assets room to breathe.
Cash won’t grow your wealth, but it can protect it.
It’s the buffer between you and a bad decision.
It’s the difference between reacting emotionally and responding intentionally.
It’s the insurance policy that lets you stick to the rest of your plan.
At Compound Advisory, we help clients build systems that include cash — not as an afterthought, but as an essential tool in a long-term strategy.
Because sometimes, the best investment isn’t growth.
It’s stability — just long enough for growth to work again.
Wondering if your cash reserves are enough?
Let’s build a plan that balances security and growth — so you’re never forced to choose one at the wrong time.
