Why you shouldn't hold cash?

The biggest risk of having too much cash available is the opportunity cost. Even during periods of higher interest rates, when we are not, the real return on cash after taxes and inflation can be negative.

Why you shouldn't hold cash?

The biggest risk of having too much cash available is the opportunity cost. Even during periods of higher interest rates, when we are not, the real return on cash after taxes and inflation can be negative. In the long term, only stock markets have the potential to achieve returns that exceed inflation. In general, having an emergency fund is good.

However, having too much cash can slow down the growth of your overall wealth. That said, the amount of cash you should have at your disposal changes as you approach retirement. The further away a person is from retirement and from actually living on their savings, the greater the risk they'll be comfortable taking, Cocco says. While it's important for everyone to have some cash in their savings accounts for emergencies, people who are still more than two years away from retiring should not have cash in their retirement accounts.

Keeping cash in those accounts is more for retirees who are actively making distributions or who will start very soon, he adds. Sure, having a hard day fund can help you survive financial bottlenecks, such as an unexpected car repair or the loss of a job. However, cash really shouldn't play a major role in investment accounts intended to finance long-term goals, such as retirement or college tuition. Cash quickly becomes a drag on returns, says Kristin McKenna, managing director of Darrow Wealth Management.