Market Commentary

• Cash is critical for liquidity and emergencies, but holding more than needed can erode long-term returns due to inflation and missed market opportunities.
• We recommend investors deploy excess cash using approaches like dollar-cost averaging or bond ladders to convert idle funds into potentially more productive assets.

Over the past month, I’ve met with clients across the country, and you might expect the hot questions to be around the artificial intelligence (AI) boom or the Federal Reserve’s (Fed’s) next move. Surprisingly, the question I heard most often was much simpler: What should I do with all this extra cash in my portfolio? It’s a great question, because while cash feels safe, it can quietly be causing you to miss opportunities.

Cash plays an important role in any financial plan. It provides liquidity for emergencies and short-term expenses, and it may serve as “dry powder” for investment opportunities. But while cash feels safe, we believe it is not an appropriate long-term investment for most investors. Over time, inflation erodes its purchasing power, and expenses, such as health care costs, are expected to continue rising faster than inflation. Historically, over the long-term stocks and bonds have delivered higher returns than cash on average — including cycles that experienced market downturns¹.

When we say “cash,” we’re not just talking about dollar bills or checking accounts. It includes highly liquid, stable-value assets such as money market funds and ultra-short Treasury bills. These instruments are useful for short-term needs but are not designed for long-term growth. Most financial planners recommend keeping 2% to 10% of your portfolio in cash, adjusted for your goals and life stage. Retirees may hold more for stability while younger investors often keep less in an effort to maximize growth potential. We believe anything beyond that is likely excess and should be put to work in investments with the potential to outpace inflation.

If your portfolio holds more cash than necessary, it may be prudent to pace yourself and avoid investing it all at once. Instead, consider using dollar-cost averaging — investing equal amounts over several months. This strategy can potentially help reduce the risk of buying at peak prices and takes advantage of market volatility. In our view, locking in today’s rates with intermediate-term bonds can turn idle cash into a productive asset. To maintain liquidity and reduce reinvestment risk, consider a bond ladder, which has the potential to provide regular cash flows while capturing higher yields. If you’re unsure how much cash is appropriate for your situation, work with your advisor to create a plan that aligns with your objectives. 

¹ Wells Fargo Investment Institute, “Capital market assumptions versus historical averages”, July 16, 2025.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates.

A periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss in declining markets. Since such a strategy involves continuous investment, the investor should consider his or her ability to continue purchases through periods of low price levels.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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