Should investors pay more attention to cash

18 September 2026, 10:50 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, inflation still elevated, and The Federal Reserve delivered a hawkish 25- the Fed embarking on a new hiking cycle, investors should manage basis-point interest rate hike on 16 September, their cash holdings strategically. First, they should optimize returns lifting the fed funds target range to 3.75-4%. on necessary liquidity. They should then establish a plan to deploy Fed Chair Kevin Warsh described the move excess cash into markets, retaining sufficient liquidity for expected as removing “a dose of accommodation,” withdrawals and near-term commitments. Phasing strategies can help adding that broad financial conditions could put capital to work while reducing the risk of mistiming markets. not be characterized as restrictive. The latest Summary of Economic Projections showed that policymakers now expect stickier inflation and

01 Investors should begin by actively planning how much cash they really need. stronger growth than they did previously. The “dot plot” put the median policy rate projection • CIO recommends that investors maintain enough cash to cover 2-5 at 4.1% for 2026, suggesting another hike this years of net expected portfolio withdrawals. year, while eight participants projected a third hike in 2027. • If an investor holds more than this, their excess cash may not be working efficiently. One liner • A thoughtful cash management strategy involves segmenting liquidity into three categories: everyday cash, core liquidity, and In an uncertain world and yet one where investment cash. It is crucial to optimize diversification, liquidity, we identify multiple compelling investment and returns within each. opportunities across asset classes, we believe treating cash as a residual may be a mistake.

02 Focusing on high fixed rates may overlook risks. Did you know? • The Federal Reserve raised rates in September. We believe they will hike again in December, then hold, whereas markets expect • History shows that phasing excess cash into nearly four hikes in aggregate. A wider range of outcomes speaks diversified portfolios can deliver more robust to greater flexibility. long-term outcomes. Over 10- and 20-year holding periods, US stocks have beaten cash • Investors should consider a more deliberate mix of short-term in 97% and 100% of cases, respectively, liquidity, fixed-term deposits, and high-quality bonds across between 1945 and July of this year, based on maturities for income and diversification. our analysis.

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

This report has been prepared by UBS Switzerland AG and UBS AG London Branch. Please see important disclaimers and disclosures that begin on page 3.

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