Marty in East Weymouth, Massachusetts, asked recently if I would tackle what he considered an “oddball question.”

His problem is one everyone might wish for: Too much cash.

“I have a lot of cash and not much in investments,” he said. “I don’t have much faith that I will be in the market at the right time, and I’m scared of losing the money I’ve worked so hard for, but I don’t think I will ever reach my savings goal if all I do is keep my money in savings accounts and certificates of deposit.”

While it might be an enviable problem, it’s a problem just the same and 40-something Marty is far from alone.

The statistics about how poorly Americans save are widespread. There are a number of surveys showing that nearly 60 percent of Americans have less than $1,000 in savings, with a stunningly large portion of that group claiming to have no savings whatsoever. That’s why that same 60 percent of people claim they could not cover a $1,000 emergency expense.

The personal-finance media hits this group of under-savers hard, with all kinds of advice for budgeting and savings that will at least help build the coffers to where it creates some stability.


The surprising numbers when it comes to savings are about the folks like Marty, people saving too much in bank accounts rather than investing it.

The Federal Reserve’s last Survey of Consumer Finances — a study done every three years and due again later this year — showed the average balance for people with “transactional accounts” stood at $40,200 in 2016. The median balance was $4,500.

“Transactional accounts” are how the Fed classifies checking, savings, money market and call accounts, as well as prepaid debit cards. Cash held in retirement and brokerage accounts would not qualify to be counted here, which means that a guy like Marty — who confessed to having a chunk of his retirement plan dollars in a money-market fund — would not have the full amount of his cash hoard reflected in the statistics.

The big discrepancy here between median and average savings level shows that there is clearly a group of people who qualify as “super savers,” maintaining ultrahigh balances in cash.

For a guy like Marty, that means that more than half of what he owns is in cash. He has some certificates of deposit — he set up a “ladder” with CDs spread out over five years of maturity and being rolled over into a new five-year instrument every time an account comes due — and some money-market funds, two online savings accounts and a lot of money at his local branch bank and in his checking accounts. Then there’s the cash in money-market and stable-value options in his retirement plans.

All told, Marty’s cash amounts to over $125,000 or about half of his assets (excluding his house).


Yup, that’s way too much cash.

Marty’s returns have been helped out by rising interest rates over the last two years. With it now possible to find online savings accounts paying close to 2.5% interest — compared to about 1.5% just two years ago — Marty has been able to get a bit more juice from his savings, but with the potential for interest rates to start falling again, he’s worried about that small payout stream running dry again.

Moreover, while Marty is worried about losing money in the stock market, he is not considering the “losses” that are mounting as his money barely keeps pace with inflation. He may be able to sleep better at night with his money mostly spared from market and principle risk, but he could awaken to a nightmare if his money isn’t growing sufficiently.

Loss of purchasing power — you don’t lose money, but the amount you have saved buys less as prices rise — is every bit as real of a problem as loss of assets to a market downturn. It’s just a slow bleed rather than a big gash.

As for the right amount of cash for Marty or any saver to hold, the answer varies from person to person, based on circumstances beyond simple risk tolerance.

To divine your answer, start by looking at your needs for an emergency fund, which typically should amount to three to six months of living expenses. Aim for the higher end of that spectrum; if your income is variable, your job is seasonal or you fear imminent job loss, ramping up to as much as a year’s worth of savings could be worth the peace of mind.

Once emergencies are planned for and any short-term potential needs for cash are covered, less cash now tends to equate to more cash later.


The average stock market return, historically, is around 10 percent annually on stocks. Moreover, winnings on the market are only subject to taxes when you sell, as opposed to the bank earnings which get taxed annually, creating a further drag on growth.

So let’s say someone like Marty shoots for safety, buys brand-name big companies with strong dividend histories and aims for an annualized return closer to 7%.

If he saves $400 per month and is getting roughly 1 percent annualized on it (much of his money is in checking accounts and money-market funds which are around or below that level), he’ll roll up about $165,000 by the time he turns 70.

If he can generate a 7 percent gain on a stock portfolio, he’ll generate more than $450,000.

That is not encouragement to go whole-hog into stocks. His mindset would never allow him to get comfortable with that.

Instead, he has to take some more risk, balance his potential loss of purchasing power against the potential that the market will go down. If he splits his money between those two options — or goes with a range of options that historically generate modest returns — and winds up with $300,000-plus, he will still be much better off than maintaining the too-much-cash approach he has now.

Cash is king for what you need to buy now, but diversification is king when it comes to riding out markets and building wealth over time and with a ride you can stomach.