The saying “cash is king” has been around for well over 100 years—credited to author George N. McLean—and the maxim still holds true in many scenarios. But is there such a thing as too much cash?
In 2023, this question became top of mind for many affluent investors as notable regional banks—Silicon Valley Bank, Signature Bank, and Silvergate Bank—collapsed. Even First Republic Bank, known for catering to some of the wealthiest families and businesses in the country, narrowly avoided insolvency through a last-minute acquisition by JPMorgan Chase. In those moments, cash felt less like a king and more like a ruler on its way to the guillotine.
At Rolling Hills Advisors, we think about cash in three key categories:
- Cash Flow Fund: This is the cash a client keeps in their checking account to cover recurring expenses—typically enough to cover 2–3 months of expenses—and is replenished by employment income or portfolio withdrawals.
- Emergency Fund: This is usually 3–6 months of expenses (depending on household income and liabilities) and is kept in a savings account or money market fund. This bucket is explicitly reserved for true emergencies.
- Long-Term Cash Management Fund: While less common, this category is reserved for future investments, tax payments, or large purchases. Given the size and timing of these funds, they are often placed in short-term U.S. Treasury Bills or liquid certificates of deposit (CDs) based on the client’s needs.
When the regional banking crisis of 2023 struck, many affluent families and businesses were holding cash balances far above FDIC insurance limits ($250,000 for individual and business accounts; $500,000 for joint accounts). Simple yet often overlooked strategies to mitigate this risk include:
- Distributing deposits across multiple banks to maximize FDIC coverage (limits apply per account registration, per bank), and
- Investing in U.S. Treasury Bonds or secondary CDs.
In addition to bank default risk, many individuals and families hold excess cash well beyond what’s needed for daily expenses and their emergency fund, which can create a drag on long-term financial success. Instead, it may be better put to work through investing toward long-term goals where it has the potential to grow.
We recommend working with your advisor to establish clear cash reserve guidelines for cash flow and emergencies, while putting excess funds into a strategy that aligns with your long-term objectives.
If you or someone you know would like to review cash management strategies and explore ways to invest or protect your cash holdings, our team at Rolling Hills Advisors is here to help.
Sources:
- McLean,George N. (1890) How To Do Business, Or The Secret Of Success In Retail Merchandising: A Book For Every Merchant
This material is provided for informational and educational purposes only. It does not consider any individual or personal financial, legal, or tax circumstances. As such, the information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind. Where specific advice is necessary or appropriate, individuals should contact their professional tax, legal, and investment advisors or other professionals regarding their circumstances and needs.
Investment Advisory Services are offered through Mariner Platform Solutions (MPS), an SEC Registered Investment Adviser. Rolling Hills Advisors and MPS are not affiliated entities. For additional information about MPS, including fees and services, please contact MPS or refer to Form ADV Part 2A, which is available on the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Registration of an investment adviser does not imply a certain level of skill or training. MPS does not provide legal or tax advice.
