Why cash management?
If you’re like most people, you’re busy. You have a job that keeps you occupied during the day, and family, fun, and hobbies you want to focus on at night and on the weekends — at least when you don’t want to take a moment to kick back and watch some Netflix.
The last thing you want to think about is transferring money from your checking account to a brokerage account, picking the investments your money will go into, and planning trades that you can’t execute until the next business day anyway. It’s a hassle, and each time you do it, you’ll typically incur expenses for the trades you place.
Because it’s such a pain, it can lead to some pretty big distortions in your portfolio. I asked two business school classmates how much they had set aside in cash at the moment, and their answers were shocking — $100k and $250k. For both of them, it represented a material portion of their portfolio and they both knew that they should do something with it. But the time it would take…
Hoarding cash has consequences.
Tilting your portfolio so much towards cash can be a big drag on returns. It can turn an otherwise healthy allocation designed to grow your assets into something that’s better designed to survive the apocalypse. For anyone trying to build their wealth, a cash allocation that remains a substantial portion of your portfolio could mean the difference between retiring early and pushing things out for years.
