Cash doesn't fall in value on a statement, which is exactly why it feels safe. What it loses instead is purchasing power: the same balance buys less each year that prices rise.
How quickly it adds up
At 3% inflation, money left in an account paying no interest loses roughly a quarter of its purchasing power over ten years, and nearly half over twenty. Interest paid on savings offsets some of that, but after tax it often doesn't keep pace. This is why a comfortable-looking cash balance can quietly fund less and less.
Cash still has a job
- An emergency fund, usually three to six months of spending
- Anything you'll need within about three years, where a market fall would be painful
- In retirement, one to two years of income, so you never have to sell investments at a bad time
Beyond that, it's a decision, not a default
Money you won't need for a decade has a different job, and holding it all in cash is itself a choice with a cost. The balance between cash, bonds and shares should follow your plan and how much short-term movement you can live with, not how the news feels this month.
