From Mattresses to Money Markets: Rethinking Cash in Uncertain Times

During the Great Depression, 9,000 banks failed, and American trust in our financial system crumbled.
It became commonplace to store your money in or under your mattress because banks were no longer trustworthy, and it felt safer to literally sleep on your money instead of taking the risk.

A lot has changed in our financial system since the 1930s.

The U.S. passed the Glass-Steagall Act, separating commercial banking from investment banking to limit risky behavior. The FDIC was created to insure bank deposits, reducing bank runs and restoring public trust, and federal regulators gained stronger authority to supervise banks, set capital requirements, and enforce standards.

And while there aren’t many Americans storing bills in their box springs these days, the modern version of this trend involves holding onto too much liquid cash out of fear and anxiety for a broad array of reasons.

Recent headlines have been calling U.S. stock markets overvalued, especially in areas like technology and AI, and social media is fraught with alarmists. Naturally, this can lead one to wonder what the right move is for their own investments.

Investors handle uncertainty in different ways. Some stay the course and ride the wave, others trim gains and shift into more stable holdings, and many feel the urge to move a significant portion of their portfolio into cash for safety and comfort. But holding on to liquid assets comes with a real long-term opportunity cost.

Cash provides stability, zero volatility, and emotional comfort, but those perceived positives often overshadow the long-term downsides.

Why Too Much Cash Hurts Your Long-Term Plan

Cash offers stability and emotional reassurance. It does not fluctuate, and it feels like a safe harbor in a storm. However, the trade-offs can be easy to overlook. Holding too much cash over long periods can work against you for several reasons:

1. Inflation Erodes Purchasing Power
If your money isn’t outpacing inflation, it’s effectively losing value. While it can feel safer to have an unmoving number in your checking account, the reality is that inflation is actively stripping away what that money can do for you in the future.

2. The Risk of Missed Opportunities
Once you pull out cash, you immediately face another challenge: deciding when to get back into the market. Trying to time the market is a fool’s errand. No advisor, no firm, and no expert has a crystal ball. Missing even a handful of strong market days can significantly reduce long-term returns and set you backward in the race against inflation.

3. Cash Does Not Compound
Investments grow through compounding, where returns generate more returns over time. Cash, on the other hand, is finite. Compound interest is critical to a person’s long-term plan, and delaying it can have a meaningful negative impact on long-term financial success.

What You Can Do Instead of Hoarding Cash

If you’re feeling uneasy in the current market, there are strategies to reduce risk without sacrificing the long-term benefits of staying invested.

1. Maintain an Appropriate Emergency Fund
Everyone should keep a dedicated emergency fund for unexpected expenses like medical bills or home repairs. This cash is your true safety net and helps you avoid disrupting your long-term investment strategy. For most people, three to six months of essential expenses is a reasonable target.

2. Plan for Short-Term Needs in a Tax-Efficient Way
Often, clients need extra funds accessible for near-term goals, such as retirement withdrawals or saving for a home. These dollars can still be invested prudently to minimize risk while continuing to grow wealth.

Consider two approaches:

• Person A keeps their cash in a bank account or investment account earning taxable interest.

• Person B invests those dollars in a tax-advantaged fixed-income strategy, such as a bond fund in a retirement account or municipal bonds in a taxable brokerage account.

Person B is likely to come out with more money in the short term and dramatically more over the long term, without taking excessive risk.

3. Reallocate Rather Than Retreat
If certain holdings feel overvalued, you can take gains and reinvest them into lower-volatility or more attractively valued areas of the market. This approach allows you to secure part of your gains, stay invested, reduce emotional stress, and maintain long-term compounding potential.

In Conclusion

Periods of financial uncertainty are normal, and the U.S. dollar is a lot less comfortable than memory foam.

Market uncertainty affects everyone differently and can be highly emotional, but assessing your options and responding rationally can have a lasting impact on your long-term success.

At Aurora, we help clients navigate these moments with strategies that balance personal risk tolerance with long-term efficiency. If you’re considering adjusting your approach, our team is available to help guide you.

We’re here to help you stay on track, even when markets feel uncertain.