Cash May Feel Safe amid Market Turmoil, but Experts Warn of Long-Term Risks

As stock markets reel from heightened volatility linked to tariff announcements, many investors are retreating to cash — but financial advisors caution that doing so may come at a cost over time. Following President Donald Trump’s announcement of country-specific tariffs, the S&P 500 suffered its worst two-day decline since the early COVID-19 pandemic, dropping roughly 11%.

On April 7, 401(k) plan trading volumes reached their highest since March 2020, with 94% of transfers moving into conservative options like money market, bond, and stable-value funds, according to retirement plan administrator Alight Solutions.

A man with dollar bills | Source: Pexels

While cash offers stability and is useful for emergencies or near-term purchases, experts say holding too much of it can hinder long-term investment goals. “Cash has a long history of offering negative ‘real’ returns,” said investment research firm Morningstar, noting that inflation can erode its purchasing power over time.

“Everyone should have some cash and some equities,” said Carolyn McClanahan, certified financial planner and founder of Life Planning Partners. She added that, ideally, all portfolios should present some form of diversification across safe and risky assets, depending on the client's finances and willingness to take risks.

Man holding money and writing in a notebook | Source: Pexels

McClanahan recommends cash for emergency funds and purchases within the next five years. The remainder, she says, should be allocated to stocks and bonds in line with one’s time horizon and risk tolerance.

Even retirees should maintain some equity exposure, she noted, to preserve purchasing power over a potentially decades-long retirement. “All investors should have an investment strategy that spells out how much they will have allocated to equities, fixed income, and cash, and they should stick with this investment policy through all markets, good and bad,” McClanahan wrote.