Portfolio a alokace
Cash as a Position: How Much to Keep Aside and Why
Key takeaways
- An emergency reserve of 3–6 months of expenses belongs outside the investment portfolio in liquid instruments.
- Cash in the portfolio dampens volatility but reduces long-term return.
- Money market funds and savings accounts are better than a low-interest current account.
- Beyond the reserve, put cash to work — even small regular investments beat inactivity.
- The appropriate cash level depends on proximity to the goal: the closer, the more.
Cash and cash equivalents are a legitimate portfolio component — they protect against volatility and ensure liquidity, but at the cost of lower returns. The key is to distinguish between a reserve, strategic cash, and "money waiting for an opportunity."
Emergency reserve vs. investment cash
First let us separate two things. The emergency reserve (3–6 months of household expenses) belongs entirely outside the investment portfolio — in a savings account or short-term money market fund. The investment portfolio does not include it. Only above this base do we think of cash as a portfolio component.
Where to park cash
- CZK savings account — instant access, deposit guarantee up to EUR 100,000
- Money market fund (UCITS) — short-term bonds, stable NAV, purchasable through a broker
- Term deposit — higher interest, but locked liquidity
How much cash in the investment portfolio?
For a long-term investor with a 10+ year horizon, the optimal cash allocation is 0–5%. Holding more than 10% permanently reduces returns. Exceptions include:
- Approaching goal (1–3 years away): 20–40% in monetary instruments
- Active management awaiting a dip: short-term 10–20%, but this strategy historically fails
Why "waiting for a dip" usually does not work
Investors who hold cash and wait for the ideal entry point on average underperform those who invest regularly regardless of market conditions. The cost averaging (DCA) strategy eliminates the risk of bad timing better than accumulating cash. Read also about what risk is and how to measure it.
FAQ
How much should an emergency reserve be?
The standard recommendation is 3–6 months of household expenses. If your income is unstable or you have a single income source, lean toward 6. The reserve belongs in a savings account or money market fund — not in equities.
Is a savings account or money market fund better for a reserve?
A savings account is immediately accessible and insured up to EUR 100,000. A money market fund usually offers a comparable or slightly higher return, but withdrawals take 1–3 business days. For the reserve, a savings account is safer; for longer-term parking, a money market fund works well.
Does it make sense to hold cash and wait for a dip?
Historically, no. Waiting for the right moment (market timing) on average underperforms regular investing. Every month out of the market is compounding skipped. If you are nervous about a large lump-sum investment, spread it over 6–12 months.