With uncertainty hovering over the stock market, a lot of investors are moving to cash and other more conservative assets. Carolyn McClanahan is a certified financial planner and the founder of Life Planning Partners, based in Jacksonville, Florida. She provides a wealth of expertise around impactful investment strategies that equip people to thrive during this stormy landscape. He’s a member of CNBC’s Financial Advisor Council. We cannot underscore enough the value of his area of focus, which is keeping a balanced portfolio that has both cash and equities.
Investors have mostly lately rushed into what they consider safe havens. They responded to the volatility of U.S. stock index futures brought on by tariffs and daily trade announcements from the Trump administration and corresponding retaliation from our biggest trading partners, such as China. This has resulted in very large mass movement into conservative assets. As per Alight solutions, nearly 94% of proceeds transitioned into money market, bond and stable-value funds.
While McClanahan recommends all Americans keep a decent amount of cash, especially people in the “accumulation” phase of their savings journey. She believes keeping three to six months in cash reserves in a quick-to-access fund is standard.
“Everyone should have some cash and some equities,” – Carolyn McClanahan
For retirees, the scenario changes slightly. Investing your money McClanahan particularly stresses investing a significant portion of your portfolio in stocks. This strategy becomes really important if you want to sustain your lifestyle in retirement for the long haul, 30 years or longer. Now, while stocks indeed have high growth potential, particularly over the long term, they are very risky assets.
Something investors need to think about is their time horizon and how that should influence their asset allocation. McClanahan suggests that individuals nearing retirement should hold a lower percentage of stocks compared to those with several decades until retirement. For example, a person who is ten years away from retirement might want to take a more cautious route in their investment portfolio.
The recent market dynamics have led many institutional investors to revise their investment paradigms. On April 7, trading volumes in 401(k) plans increased to levels we haven’t experienced since March 12, 2020. That leap reflects an increasing sense of urgency among investors to take a look at where they stand.
“The ups and downs of the markets can be nauseating, and you might have to bank losses if you need your money and can’t ride out market downturns,” – Carolyn McClanahan
McClanahan further stresses the need for a clear investment plan that details specific objectives as well as your risk level and tolerance. This strategy should include a diversified mix of assets, blending safe investments with riskier ones based on each client’s financial situation and psychological capacity for risk.
A recent paper from Vanguard reinforces McClanahan’s argument for diversification. The initial analysis examined stock and cash returns only. One key insight it provided was that consumers who hold a portfolio solely in cash tend to lose wealth over time once inflation is factored in. This is further affirmation that cash may be safe in the short term, but its long-term value is a greater risk to one’s overall financial health.
Investors continuing to sit in cash-heavy portfolios will soon find it harder and possibly impossible to achieve their long-term investment goals. As a consequence, they may have to save more of their discretionary income. This will go a long way to offset the constrained return generating ability of cash equivalent assets.
McClanahan recommends that any cash reserved for upcoming purchases—such as a home down payment, car purchase, or tuition expenses—should be held separately from longer-term investments. This combination provides people with short-term cash flow solutions and gives them the freedom to pursue long-term, wealth-building strategies.
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