How much should I keep in cash versus invested?
Keep 3–6 months of living expenses in easily accessible cash as an emergency fund. Money needed within 2–3 years should also stay in cash or low-risk assets. Everything beyond that should generally be invested, as long-term cash holdings lose purchasing power to inflation.
The emergency fund: the baseline
This cash protects your investments from forced selling during unexpected life events. Keep it in a high-interest savings account or cash ISA.
Beyond the emergency fund: short-term goals
Any money you'll need within 2–3 years (e.g. a house deposit) should stay out of equities to avoid the risk of a drawdown at the wrong time.
The hidden cost of holding too much cash
Cash rarely beats inflation over time. £50,000 in cash growing at 3% over 20 years becomes roughly £90,000 nominally. The same amount in a diversified equity portfolio at 7% could grow to around £193,000. Excessive cash creates a real, compounding drag on wealth.
Key takeaway: Cash feels safe, but too much of it is a guaranteed slow loss of purchasing power. The right balance depends on your emergency needs and near-term goals.
Arken helps you map your cash holdings against your goals and time horizons, flagging when you're holding too much cash or have short-term money exposed to market risk.
