You have cash sitting in your portfolio. Maybe it’s from a recent business sale, a bonus, or simply what you’ve accumulated while waiting for the right opportunity.
With ongoing tensions in Iran, trade policy uncertainty, and concerns about AI-driven labor disruptions, it’s understandable if you’re hesitant to deploy that cash. You should have a structure in place where decisions are made in the context of your greater plan. In this case, the decision to invest or not is based on something other than fear, hesitation, or even excitement.
For high-net-worth investors, cash management is not a minor detail. When you hold $3 million in cash versus $20,000, the difference in yield compounds into meaningful money.
But the right amount of cash depends on your liquidity needs, your tax situation, and how long you plan to keep the money on the sidelines.
If you are sitting on some cash, here’s a practical guide for high net worth investors to think through your best yielding options right now.
Know What Cash Is Actually Costing You
Cash feels safe. It is safe in the sense that the principal does not fluctuate, and in an environment of geopolitical tension and rapid technological change, that stability carries weight. But safety is not free.
The opportunity cost of holding too much cash compounds quietly. Picture a $100,000 portfolio where just over 10% sits in uninvested cash earning 1% interest, while the rest earns an average of 5.8%. Over 30 years, you would lose over $73,000 because of cash drag. That is not a hypothetical scenario. That is what happens when cash sits idle in a portfolio that could otherwise be working.
Right now, money market accounts are earning around 3% to 3.5% in line with short-term interest rates. That is better than it was two years ago, but it is still struggling to keep up with inflation over any meaningful time horizon. It provides a place to hold short-term cash and gain some interest, but it is not a long-term strategy.
The point is not to eliminate cash, but to match it to your circumstances. Be intentional about how much you hold and where you hold it. If you’re keeping extra reserves because of fear around current events, let’s address your safety net bucket, because fear should never be an investment strategy. If you are holding cash for a strategic short-term objective, make sure those reserves are earning competitive yields while they sit on the sidelines.
Money Market Funds: The Default Option
Money market funds are the most common place for high net worth investors to park cash. They offer daily liquidity, stable principal, and yields that track short-term interest rates.
The advantage is simplicity. You can move money in and out without penalties or lock-up periods. The downside is that yields are not optimized for tax efficiency, and you are still exposed to the erosion of purchasing power over time.
Money market funds are appropriate when you need access to cash on short notice. If you are planning a large purchase, funding a trust distribution, or holding reserves for an upcoming investment opportunity, money markets make sense. But they should not be a long-term strategy for cash you do not need to touch for months or years.
What to Look For
Not all money market accounts are the same. If you are using traded money market funds, look for funds with low expense ratios and exposure to high-quality instruments like Treasury bills, repurchase agreements, and certificates of deposit. Avoid funds that reach for yield by holding lower-rated commercial paper.
If you are working with a custodian like Schwab or Fidelity, their in-house money market funds are typically competitive and easy to access. Just confirm that the fund is not sweeping your cash into a lower-yielding option by default.
Some banks offer competitive money market or high-yield cash rates, but many are introductory rates or come with strings attached. Be wary of chasing yield without reading the fine print. It can also add unnecessary complexity if you are always chasing the highest yield across banks.
Treasury Bills: The Tax-Advantaged Alternative
Treasury bills offer a better after-tax return for investors in states with income tax. T-bills are backed by the U.S. government, mature in four weeks to one year, and pay interest that is exempt from state and local taxes.
If you live in California, New York, or another high-tax state, this matters. A 4% yield on a T-bill is effectively worth more than a 4% yield on a money market fund once you account for the state tax savings. The difference can be 50 to 100 basis points depending on your state rate.
The trade-off is liquidity. T-bills are not as easy to access as a money market fund. You have to buy them through TreasuryDirect or your brokerage account, and while you can sell them before maturity, you may face a small bid-ask spread. For cash you do not need for at least a few months, T-bills often win over money markets.
T-bills are also a useful tool for matching a specific duration. If you know you will owe $100,000 in taxes on a specific date, you can align the T-bill maturity with that cash requirement.
Ultra-Short-Term Bond Funds: A Step Further
If you are willing to accept slightly more interest rate risk, ultra-short-term bond funds can offer higher yields than money markets or T-bills. These funds invest in bonds with maturities of one to three years, which means they are more sensitive to rate changes than money markets but less volatile than intermediate-term bonds.
The advantage is yield. Ultra-short-term bond funds are currently paying in the range of 4% to 5%, depending on the fund and its credit quality. The disadvantage is that the principal can fluctuate. If interest rates rise, the value of the fund will drop slightly. If rates fall, the value will rise.
What to Watch For
A bit more due diligence is required here, as you do not want to be stuck in a bond fund that is losing value when you need cash. Pay attention to the fund’s duration and credit quality. A fund with an average duration of one year will be less volatile than a fund with a two-year duration. A fund that holds only government and agency bonds will be safer than a fund that holds corporate bonds, but it will also yield less.
How Much Cash Should You Actually Hold?
The answer depends on your specific circumstances, and no two investors are alike.
When determining a proper cash position, consider the following questions:
- What are my short-term obligations that need to be met, including taxes, retirement plan contributions, HSA contributions, vacation planning, college expenses, etc.?
- Am I a net saver or a net spender? Do I have enough cash flow to handle my obligations, or will I need to tap into my savings?
- Do I have other sources of liquidity, such as an easily accessible line of credit for emergency use?
Too much cash can be a meaningful drag on portfolios, so answering these questions honestly and considering your risk profile will help create a framework around cash decisions that isn’t driven by current emotion.
Tax Considerations You Cannot Ignore
Where you hold your cash matters for taxes. Interest income from money market funds and bonds is taxed as ordinary income, which means it is subject to your highest marginal tax rate. For high net worth investors, that can be 37% at the federal level plus state income tax.
T-bills offer an advantage here because the interest is exempt from state tax. For investors in high-tax states, this can save thousands of dollars per year on a large cash position.
Another consideration is where to hold your cash within your overall portfolio. If you have both taxable accounts and retirement accounts, it often makes sense to hold cash in your taxable account and keep higher-yielding assets in your IRA or 401(k). This is part of what we call asset location, and it can have a meaningful impact on your after-tax returns over time.
When to Move Cash Back Into the Market
Holding excess cash is rarely a smart, permanent strategy. At some point, you need to decide when to redeploy it into equities, real estate, or other growth assets. That decision is harder right now. Between escalating military tensions in Iran, ongoing debates about AI’s impact on employment and productivity, and persistent inflation concerns, the list of reasons to wait feels longer than usual.
The challenge is that markets never truly settle. There is always something happening, whether it’s economic data, geopolitical events, interest rate changes, or headlines driving uncertainty. If we wait for calm, we often end up waiting indefinitely or missing opportunities when pricing is more attractive.
Our approach is to use uncertainty to our advantage rather than avoid it. Instead of investing everything at once, phase money into the market over time, taking advantage of periods when prices are more favorable. Volatility, while uncomfortable, often creates the best entry points. Most people do not act when the moment arrives. They wait for the market to drop, and then they wait for it to stabilize, and by the time they feel comfortable buying, the opportunity has passed.
A better approach is to set a plan in advance. Decide how much cash you need for liquidity and how much is excess. Then commit to deploying the excess over a specific time frame, whether that is three months, six months, or a year. This removes the emotional element and forces you to act on your own plan rather than reacting to headlines.
How We Think About Cash Management at Keen Capital
At Keen Capital, we work with high-net-worth families to build portfolios that balance liquidity, tax efficiency, and long-term growth. We do not sell annuities or investment products. We operate as fee-only fiduciaries, which means our only incentive is helping you make the best decisions for your situation.
Cash management is one area where tax planning and wealth management overlap. The right answer for where to hold your cash depends on your state tax rate, your liquidity needs, and how long you plan to keep the money on the sidelines. We help clients think through those trade-offs and implement strategies that make sense for their specific circumstances.
If you want to talk through your cash allocation and see whether you are leaving money on the table, schedule an introductory call with our team. We start by understanding your full picture before offering any recommendations.
This content is for informational and educational purposes only and does not constitute investment advice. Past performance does not guarantee future results. Investing involves risk, including possible loss of principal.
Consult with a qualified financial advisor before making investment decisions.
Keen Capital is a registered investment advisor.
Common Questions
Frequently asked questions on this topic.
Where should HNW investors keep large cash balances right now?
For HNW investors, cash usually lives in a layered mix: a Treasury money-market fund for daily liquidity, short-duration Treasury bills for known near-term spending, and a high-yield brokerage cash sweep for opportunistic dry powder. The mix depends on the investor’s near-term liabilities and tax bracket, not on the headline yield.
Are Treasury bills still better than CDs for tax-aware investors?
For investors in higher state-tax brackets, Treasury bills usually beat CDs after tax because T-bill interest is exempt from state and local income tax. For South Carolina residents, that exemption is meaningful but smaller than for high-tax-state investors. The right answer depends on the investor’s marginal federal and state rate.
Is the 4% money market yield going to last?
Money market yields track short-term policy rates. As the Federal Reserve adjusts the federal funds rate, money market yields follow with a short lag. Locking in longer-dated Treasuries or callable CDs is one way to extend yield duration; the right balance depends on the investor’s planning horizon.
Should I keep more than one year of expenses in cash?
A healthy cash reserve covers 6 to 12 months of expenses for most HNW households, plus any planned near-term liabilities such as taxes due, tuition, or capital calls. Beyond that, holding cash carries opportunity cost; investing the excess into a diversified portfolio usually fits the long-term plan better.
About the Keen Capital Team
This article was prepared by the Keen Capital team in Chapin, SC. Keen Capital is a fee-only fiduciary wealth advisory firm registered with the SEC (CRD 145023), serving high-net-worth families across Chapin, Columbia, Lake Murray, Lexington, and the broader Midlands. Our team includes CFP®, CFA, CPA, and EA credentials. Meet the team.
This content is for educational and informational purposes only and does not constitute investment advice. Past performance does not guarantee future results. Investing involves risk, including possible loss of principal.
