Weekend Reading – Why more cash?
Hi Folks!
Welcome to a fresh Weekend Reading edition on cash and retirements by Wealthy Barbers.
First up, a few recent posts in case you missed them…
Earlier this week, I presented My roadmap to financial independence in my early 50s with my friends at TD Direct Investing – and what you can take from that to tailor your own financial independence path. I’ll provide a link to the recorded event soon. As part of that session, I referenced this:
And, with July coming up fast that means I will post another monthly dividend income update soon. Until then, this was my latest post:
Finally, I wanted to remind you I just started a YouTube channel with my wife! Yes, My Own Advisor and his better-half will be on video to share our retirement spending plans, updates on our hobbies, our travel, and much more!
I’ll continue to post content on the blog but you can now engage with us via this YouTube channel – subscribe for free here!
My wife will be the content creator and you’ll hear more from her too! Our next video is coming out soon…so be sure to subscribe to get notified when the next video drops.
Weekend Reading – Why more cash?
The theme for this Weekend Reading edition is Ben Carlson’s post: why are investors holding more cash?
He provides a few reasons in his post above but first, some reminders why some bonds instead of cash might still make some sense for you…as part of a balanced portfolio.
- Bonds can be used to support your investing behaviour – ride out stock market volatility – including being strategic to buy more stocks soon.
- Bonds can be used to rebalance your portfolio – helping you keep your portfolio aligned to your investing risk tolerance and therefore asset allocation (mix of stocks and bonds).
- Bonds can be used for spending purposes – where some fixed income is “king” for major, upcoming, near-term spending.
That’s my list and really the only reasons I would own them.
But I believe cash / cash equivalents are better than bonds for us.
What is considered cash / cash equivalents?
By cash / cash equivalents I mean money that is primarily 1. secure and 2. liquid – assets that can be readily converted to cash, to support 3. short-term spending needs without selling other assets.
Examples for us include: cash in our everyday chequing account, cash in higher interest savings accounts (HISA), owning interest savings accounts (ISAs), owning money market funds (MMFs) in registered accounts, owning cash-alternative ETFs and yes, even some GICs can work too if they include short-term maturities and are redeemable for the liquidity benefit.
In portfolios, cash is one of the three major asset classes along with equities (including stocks) and fixed income (including bonds).
Cash / cash equivalents help guarantee the principal and tend to provide retirees and early retirees like us with peace of mind that they have sufficient liquid reserves to weather periods of uncertainty or an economic downturn.
This means, for us, 10% of our entire retirement portfolio is directed to cash / cash equivalents at the time of this post to help meet our spending needs for the next 18 months or so.
In a bit more detail, I/we like cash / cash equivalents (better than bonds) for these reasons:
1. No Price Volatility
When interest rates rise, bond prices fall, which can result in capital losses if you need to sell the bond before it matures. Cash equivalents maintain a stable net asset value (NAV) – our money market funds are priced at $10 that does not change. The cash in our chequing or savings accounts is there when we need it – it does not change in price either.
Here is a good primer on money market funds from TD Direct Investing.
We own money market funds inside our RRSPs in particular since the highly-liquid, low-risk nature of money market funds make them suitable to preserve capital and provide regular, monthly interest payments.
2. Liquidity
Cash equivalents are highly liquid – see my point above out money market funds. In the case shorter-term GICs, these mature in a short timeframe. Short-term GIC rates change frequently based on the Bank of Canada’s overnight rate. While the Big Banks generally offer lower yields (e.g., 1-month to 1-year terms often range between 1.75% and 3.00%), smaller financial institutions, credit unions, and online banks may offer premium rates. There are also redeemable GICs. When your GIC term is up, you can either cash-in your GIC – and get your initial investment back plus interest – or renew your term and keep growing.
In specific economic periods, central banks may raise short-term rates to combat inflation although I don’t see that happening now in summer 2026 but you never know. This environment can create an inverted yield curve, where cash equivalents (like MMFs or GICs) can yield higher returns than longer-term bonds without the added risk!
3. Short-Term Focus – Simplicity
From Ben’s article:
“Most investors seek more balance in retirement when it comes to risk assets. Many investors hold an allocation to cash as a margin of safety in retirement.”
You bet. Those days are here for us.
If your time horizon to use your money, guaranteed to be there, is under 1 to 3 years, I believe the risk of holding bonds often outweighs the benefit unless that is part of your long-term portfolio construction (e.g., 80/20 asset mix or 70/30 asset mix).
Cash / cash equivalents just make sense to support short-term focus.
As always with saving and investing, these questions need to be answered and monitored:
- What is your time horizon (when do you need your money) to be there?
- What is your risk to accept losses during that timeframe?
- What are the tax consequences in keeping assets in a taxable or tax-advantaged account?
Unless something really changes, I/we will continue to hold about 10% or so cash / cash equivalents in our portfolio.
It was interesting to read that I wrote about this concept some 12 years ago now…
During your asset accumulation years, cash can be seen as a drag on long-term returns. There is little need for liquidity in a long-term portfolio during the accumulation stage, since you’re working, you’re investing, and you’re trying to build assets. Maybe an emergency fund will do.
During your asset decumulation years, cash can take on a much larger, important role in your portfolio: it offers 1. security by removing price volatility, 2. liquidity, and 3. it supports portfolio simplicity to cover short-term spending needs so that you are not forced to sell your stocks or longer-term fixed income asests in your portfolio during a protracted market downturn.
Readers, what’s your take on cash / cash equivalents these days? Including if an AI-generated stock market bubble is / is not upon us?
More Weekend Reading – Beyond why more cash?
A reminder that some believe an AI Bubble is coming…
The Wealthy Barber David Chilton is going to retire soon (subscription), well, semi-retire at least by stepping away from his podcast and some public speaking. Congratulations, Dave! I have tried my best to pay myself first since I started my own RRSP account at age 22. That has served me well and allowed me to retire early.
Have a great weekend and I’ll be back next week with some new content for you to enjoy including a reader question of the week to answer!
Mark
In my non-registered account where I only sweep dividend income to live on, I keep a $100k emergency fund so I should not have to sell any shares if I need a huge home repair or anything vehicle related. My TFSA is maxed out in XFN (Canadian finance), XIU (TSX), XQQ (Nasdaq), and XCHP (semiconductors) passive index funds, very little cash, less than $1000. My RRIF is 95% stock, 5% cash maintained but a little higher due to rebalancing. The cash is purely to pay taxes as I withdraw in-kind shares each year so I really don’t care if there is a drop in stock prices, I will be withdrawing more shares if that happens and can ride it out in the non-registered since I hold dividend stocks anyway. I stick with TD MMFs to hold cash, no GICs or bonds.
Impressive, Zack!
Big fan of maxed out TFSAs. We will do the same in 2027 for us too…basically very little cash there = $1k or $2k and when it goes over that, we buy more ETFs there.
I do the same inside RRSPs: stick with MMFs vs. bonds whatsoever!
I appreciate you sharing those details to help others here.
Mark
Congratulations on the YouTube channel Mark! Looking forward to following you guys ..
Ha, thanks, should be interesting to learn and see what we do with it!
Hi Mark. Earlier in my financial journey I was usually fully invested with very little cash. Now on the verge of retirement I have 15 to 20 percent in cash like holding. Including some GIC’s in a 3 year ladder. I believe I’m close enough to winning the game so I have dialled back the risk a bit. The last few years have been very good to most investors and at this point I’m less prepared to take larger losses like I was earlier. Plus the cash and cash equivalents will be needed shortly. Cash in a portfolio depends a lot on where you are in your life journey. Enjoy your retirement Mark. Cheers.
That seems very wise. I was 100% equities for years (beyond an emergency fund) but in recent years we got to a 90/10 mix.
I hear you on that, same thoughts: given the last few years have been so good… “I’m less prepared to take larger losses like I was earlier” now in retirement.
Stay in touch on your journey!
Mark
Congrats to you and the Mrs. on the launch of your YouTube channel, already subbed:)
The only correct answer to the cash question is yes you should have some. How much really depends, among other things on what else is in your portfolio. If you hold risky index funds you might need more if you hold dividend stocks/ETF’s you might need less. We hold cash, MMF’s supplemented with high quality corporate credit. No bonds.
We carry more cash than normal given where the markets are at.
Thanks for that, Ben!
Yes, it really depends on the person. Our sleep at night factor is about 18 months or so right now – until the end of December 2027.
I will figure out our 2028 spending plans and get organized on that cash later this year to stay ahead of the game.
Are you looking to buy anything or just the opposite?
I have no $$ to buy anything right now – all aligned for near-term spending plans.
Mark
That is a lot of cash, nice:) We’re not aiming for that much but picking up a little bit of ZMMK and ZPR every month at ex div date to add to our pile. We use cash differently we aim to live off our distributions cash is a backstop should they fail.
We are not reinvesting as much definitely holding back. Having excess cash is great but is a bit of a double edged sword it always creates temptation to just buy more even when it does not make a lot of sense. Having no $$ alleviates this problem.
Ben
ZMMK is great. Big fan of that one. You might recall I picked that for the MoneySense team this year too.
https://www.moneysense.ca/save/investing/best-etfs-in-canada/
Yes, less cash means less temptation I guess too!
Why more cash? I wish I had a smart answer. In my case it comes down to two of my many faults colliding with each other. I don’t know what I want to do (indecision) therefore I put off making any decision into the future (procrastination).
I park surplus cash into a Hubert One-year Quarterly Term (basically a cash equivalent). Not ideal at all. Especially when the dang things mature I tend to just let them renew for another year. And to top off the stupidity of holding these things, the interest is taxable income each year *and* helps to push me further into the OAS clawback territory.
So long story short, the cash keeps accumulating.
You have good problems, in that, you don’t need to have too much cash set up as far as I know since your income streams are ample to cover your expenses…without lots of cash on hand.
So, it’s OK to be a bit lazy now and then – including just keeping cash on hand at a low rate just in case you need it; keeps accumulating.