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Investors should keep cash savings in their bank accounts for rainy days. Cash reserves can serve as a hedge against unexpected future expenses (Ivan Sichkar, 2012). This is a prudent risk management strategy that may also enhance overall investment returns.

The need for unexpected cash often rises during economic downturns, when the risk of job loss and prolonged unemployment is higher. Without sufficient cash savings, investors may be forced to withdraw money from their investment portfolios – often at the worst possible time.

An economic downturn is one of the least favorable times to sell securities, as prices tend to be depressed. Selling during a market decline prevents investors from benefiting from the eventual recovery. In contrast, smart cash management provides a financial cushion, helping investors weather tough times without having to liquidate long-term investments.

Instead of relying solely on their investment portfolios, investors should aim to keep at least six months’ worth of living expenses saved in cash. Today, there are attractive cash alternatives available—such as the iShares 0–3 Month Treasury Bond ETF (SHV), which had a yield to maturity of 4.3% as of April 14, 2025. This is a very conservative investment option that may be suitable for holding your six-month cash reserve. Of course, yields can change over time, and you should evaluate other available options before deciding where to keep your emergency savings.

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