Here’s some controversial financial advice for current times: Hold more cash.

That is not the same as “go to cash,” which would be a call to exit the market. Far from it.

And it’s not advice most people are comfortable giving right now, given current economic conditions. On Tuesday, the U.S. Labor Department released the latest Consumer Price Index numbers, showing an 8.5% rate of inflation last month, the fastest 12-month pace of rising prices since 1981.

Holding cash hardly feels like a winning strategy when every dollar you set aside today is likely to have less than 95 cents’ worth of buying power a year from now.

But if consumers, savers and investors learned anything from the financial offshoots of the pandemic, it was the value of an emergency fund, and while current inflationary pressures are not remotely the same kind of crunch that a potential job loss or work stoppage is, they are presenting a serious problem, especially for anyone who actively lives off of their investments.

As someone who has said in recent columns not to let higher prices freak you out and to remember that they won’t break you or force you to live an comfortable retirement, this is not some about-face or change in my tune.


In fact, my thinking here ties into another recent column about how these volatile, uncertain times call on investors to lean in to risk, diversifying so that they get a little of everything into their portfolio.

In holding more cash, however, investors diversify and protect the timing on their investments, leaving the long- and intermediate-term holdings in place, and covering short-term spending needs despite suffering low returns on the greenbacks.

The standard investment advice people get in volatile times is to buckle up and ride it out. That remains the best course of action — perhaps with some minor portfolio tweaks — and the plan for anyone who can sit still through the short-term action on the way toward reaching their long-term goals.

The problem is that staying put and riding things out gets more difficult the more volatile and unpredictable the stock and bond markets.

So let’s look at the current situation, with inflation at levels last seen 40-plus years ago and interest rates rising and threatening to go significantly higher.

In an inflationary period, the natural reaction of the bond market is for interest rates to rise, which drops the price of the bonds and the value of bond funds. Meanwhile, inflationary environments also put downward pressure on stock prices.


That means that a standard investment mix of, say, 60% stocks and 40% bonds could see both sides losing money at the same time.

That’s a paper loss and no problem, until you need to make a withdrawal.

If you must withdraw 4% or 5% of your money at a time when the account value is shrinking, your investment statements are going to reflect bigger-than-market declines.

When the market loses a dime and you remove another nickel, your losses on paper look like big dollars.

That’s when people get panicky and make things messy.

“If you’re in a position where you need to make some withdrawals, then you really might want to have some money sitting around in cash — as little as you are getting — just because it’s not going down,” said John Waggoner, longtime personal finance journalist and the financial editor at, in an interview this week on “Money Life with Chuck Jaffe.” “Having money on hand that will not be going down when everything else is, that’s a good idea.”

Yes, it’s even a good idea if that cash is losing some purchasing power to inflation each month it is on the sidelines.


Savvy investors will factor in just how short-term their needs are — there’s a big difference between cash you might need to access tomorrow and money that you might need to tap on short notice over the next few years — and gameplan around that.

For example, one of the best, simple buys right now is the inflation-protected U.S. Savings Bond (I bonds), currently paying 7.12% and likely to be paying north of 8% when the rate adjusts in May.

It’s a long-term investment that you can repurpose for your own needs, but it won’t replace a money-market fund as a parking place for cash with immediate needs, because I-bonds must be held for a minimum of one year; cashing them in the first five years results in the loss of three months’ interest.

Yet for someone who has cash in the money-market account to cover immediate emergencies — but who worries that inflation will remain at/near current levels into or beyond 2023 — an I-bond can be an ideal parking spot, generating a better return than bank accounts and money funds even after paying the short-term withdrawal penalty.

It’s an extension of the lesson that many investors learned the hard way during the pandemic, when having an emergency fund and a cash stash was essential for minimizing or avoiding a lot of the pain.

It is also equally personal/individual, in that this advice is not one-size-fits-all. Young investors tend to think time will heal all wounds — and they might be right — but if they’re planning to cash investments to buy a home in a few years, at least some of their money can’t simply “ride it out.” Likewise, seniors who meet income needs with a steady dividend stream or with annuities and other cash-generating securities might not have much reason to access extra cash in the short run.


But for anyone who is feeling the need to be defensive, it’s hard to argue against having a little more cash on hand now.

And for those who want to quibble about how that cash is losing ground to inflation, consider that small shortfall the cost of insurance against tapping long-term assets at the wrong time in case of emergency.

If it helps you sleep better at night, it’s worth it.