MoneyWeek article - how much of your assets should you invest?

Factor in your immediate needs, what may come up within the next 5 years, and what is left over; what remains is what you should consider for wider options. To give you a starting point, I sometimes say, 'If I fast-forwarded time and we are 5 years in the future, how much of what you have is still likely to be there?' It's a great way to kick off the coverstation and get people thinking. Clients also need to be educated that holding too much cash comes at a cost, especially with inflation looking to change trajectory.

Most likely a period of financial repression will follow around the world as Governments are battling high debt to GDP ratios and holding your money in cash or government bonds will result in negative real returns. There is no exact proportion, you need to have some low volatile investments (not necessarily cash) for contingencies, but the asset allocation should be based on achieving your long term life goals.

The UK has never developed the investment culture seen in countries like the US or Australia, and that shapes how households behave with their money. Much of the nation's wealth sits with baby boomers, many of whom lived through high inflation eras, the dotcom crash, and 2008 experiences that understandably reinforce a preference for cash and property over markets. With inflation having run well above target in recent years, money in low-interest accounts has steadily lost real value. Frozen tax thresholds also mean more savings interest is now pulled into income tax, reducing returns further.
There isn't a one size fits all answer for how much to invest. A practical way to think about it is in layers: short term money for emergencies and known costs, medium term savings for goals within a few years, and longer term capital that can tolerate market ups and downs. The longer the time horizon, the more room there may be to consider investing.

The biggest danger of holding too much cash is inflation quietly eroding its value over time. If you look at the cost of everyday items, even something as simple as eggs over the past five years you can see how cash loses purchasing power. While cash feels safe, in real terms it can be one of the riskiest assets over the long term. That said, cash absolutely has a role. It’s essential for short-term spending, emergency funds and providing peace of mind. The right balance depends entirely on the individual, their age, goals, spending needs and other assets. For example, someone with secure income from a State Pension or defined benefit pension may be able to invest more than someone without that certainty. There’s no one-size-fits-all percentage, but many UK households are holding more cash than needed compared to other developed economies. The key is making sure excess cash beyond what’s needed for security is working harder through investments aligned to long-term goals

Cash feels safe, but over time it is a drag on performance. Inflation steadily erodes its real value, so holding too much can quietly damage long-term wealth.

It is still important to keep a safety buffer. While the FCA does not set a fixed rule, around three months of essential spending is a sensible guide. Beyond that, excess cash often becomes inefficient.

Some clients, where appropriate, take a more proactive approach by investing surplus funds in a Stocks and Shares ISA using liquid investments. These can usually be accessed within a few days if needed. Short-term borrowing, such as a credit card, can cover immediate emergencies while funds are withdrawn. This carries risk, so it is not for everyone.

In reality, most wealth already sits in pensions and property, so the decision is often about how to use surplus funds. As a general principle, both cash and investments should be held within ISAs where possible to maximise tax efficiency.

As uncertainty increases, may people are staying clear of investments and sheltering their savings in cash. However, with inflation taking off this might be the only asset class that is guaranteed to lose you money. Set aside an emergency fund and maybe a little extra in today’s environment, but anything that you won’t need to ‘fix the roof’ should be invested wisely to make a real return.

Holding too much cash can feel safe, but it is not always safe in real terms. Cash gives certainty of balance, but inflation quietly eats the spending power behind that balance. The question is not “cash or investments?” It is “what job is this money meant to do?” I would separate money into buckets: an emergency fund, short-term spending, medium-term goals and long-term wealth. Cash is ideal for the first two. Money genuinely not needed for five years plus should at least be considered for investment, because time gives people the ability to ride market volatility. There is no magic percentage that fits every household. A young professional with stable income may invest more; someone nearing retirement, buying a home or supporting family may need more cash. The danger is when people hold cash not by strategy, but by fear or confusion. Good financial planning should turn that fear into structure. Cash protects today. Investing, done properly and diversified, helps protect tomorrow too.

There is no right or wrong % of assets that should be held in cash...it depends on the individual, there circumstance, their spending plans and their short / medium and long term needs.

That said, setting aside cash that would cover 3 - 6 months regular spending is prudent as a "cash reserve" or "emergency fun". Add on top of this cash require for any specific spending plans such as house renovations or large purchase to get a realistic sum to hold in cash.

The key principle I would apply is medium to long term cash holdings should ideally be invested in line with a clients goals / risk appetite and risk tolerance.