Should investors pay more attention to cash

21 August 2026, 15:08 UTC Chief Investment Office GWM Investment Research

Should investors pay more attention to cash? UBS House View Briefcase Marianna Mamou, Head of Advice Beyond Investing, UBS Switzerland AG; Frederick Mellors, Strategist, UBS Switzerland AG; Matthew Carter, Strategist, UBS AG London Branch

Key message New this week With investment opportunities abundant and inflation still elevated, Inflation's dangerous effects on excess cash investors should be intentional with cash holdings. First, they should were brought home to euro-based investors optimize returns on necessary liquidity while managing counterparty on 20 August. European gas prices climbed and concentration risks. They should then establish a plan to deploy 3.4% on the day and hit their highest level since excess cash into markets, retaining sufficient liquidity for expected January 2023 at EUR 65.50/MWh, as worries of withdrawals and near-term commitments. Phasing strategies can help an energy shock from the US-Iran conflict rattled put capital to work while reducing the risk of mistiming markets. investors. A market-based measure of expected inflation, the Euro 1-year inflation swap rate, rose to near one-month highs.

01 Investors should begin by actively planning how much cash they really need. One liner • CIO recommends that investors maintain enough cash to cover 2-5 years of net expected portfolio withdrawals. This range is based In an uncertain world and yet one where on historical recovery periods for balanced portfolios (stocks and we identify multiple compelling investment bonds) following their worst drawdowns. opportunities across asset classes, we believe treating cash as a residual may be a mistake. • If an investor holds more than this, their excess cash may not be working efficiently toward long-term financial goals. Did you know? • A thoughtful cash management strategy involves segmenting liquidity into three categories: everyday cash, core liquidity, and • History shows that phasing excess cash into investment cash. It is crucial to optimize diversification, liquidity, diversified portfolios can deliver more robust and returns within each. long-term outcomes. Over 10- and 20-year holding periods, US stocks have beaten cash

02 Focusing on high fixed rates may overlook risks. in 97% and 100% of cases, respectively, between 1945 and July of this year, based on • While markets still expect US interest rates to rise this year, we think our analysis. the Federal Reserve is more likely to stay on hold. What’s more, mechanically rolling over very short-term deposits exposes investors • Looking at data from 1992 to July of this year, USD 100 investing in such a combination of to potentially significant reinvestment risk. stocks (S&P 500) and bonds (Intermediate • Instead of rolling over short-term deposits, investors should Treasuries) would be worth roughly six times consider locking in currently elevated yields with longer-term fixed- the value of the same USD 100 kept in US 1-3 term deposits or high grade bonds. This strategy may outperform month T-bills. cash in adverse growth scenarios where rates fall and bonds have potential for capital gains. Investment view

03 Investing surplus cash systematically can overcome emotional pitfalls. We believe investors should optimize returns on necessary cash, using a variety of tools to • Investors today may be loathe to invest near all-time highs or balance return against managing interest rate, fearful of a substantial correction. But history suggests market credit, FX, and market risk over a 5-year horizon. timing seldom pays. Phasing excess capital into diversified portfolios of stocks, bonds, commodities, and alternatives • Making a plan to phase into core portfolios when stocks decline can maximize chances of achieving financial by a certain threshold—or delegating the management to goals, seize current tactical opportunities in professionals—may help overcome bias and help investors focus on stocks, and reduce timing risk. today's constructive growth, earnings, and Fed rate outlook.

This report has been prepared by UBS Switzerland AG and UBS AG London Branch. Please see important disclaimers…