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out of cash

One step many Americans can take to reach their financial goals is to put money to work in the market. Unfortunately, on average they hold most of their investible assets in cash. This year’s findings, however, give us newfound hope.

Chart: Reasons for holding cash

You can’t invest for the future in the future. Despite this, Americans hold 58% of their investible assets in cash where it earns little or no interest.

For many, this sort of cash-heavy allocation is a poor way to prepare for long-term financial goals like paying for retirement or college. The good news: on average, 20% of their cash is earmarked for investing or long-term savings. This suggests that with the right guidance, it might be more productively invested.

Who wants to get out of cash?

We asked Americans if they considered moving any of their money from cash and savings accounts into investments. Responses unsurprisingly varied. Some reject the idea of putting any money into riskier investments, while others are actively contemplating doing so.

Chart: Considered cash into investments Chart: Non-considers of cash into investments
Chart: Considered cash into investments
Chart: Non-considers of cash into investments

Key factors in making the move

Nearly half of Americans have considered investing some of their cash over the past 12 months. Where confidence is lacking, a clearer understanding of investment risks and the safety of their invested capital could give investors greater conviction.

Chart: Key factors in moving out of cash

Chart: Understanding the benefits and risks of investing

Understanding the benefits of investing

Among Americans who are seriously considering investing more of their cash, their most common reason for doing so is simply that markets may offer better long-term return. Seeking better retirement preparedness represents a close second.

Conversely, investors who aren’t ready to make the move may not grasp the potentially adverse impacts of holding cash over the long term.

The biggest barriers

55% of Americans aren’t considering investing more. The most common reason cited: having too little cash to make doing so worthwhile. But risk aversion and a desire for speedy access to cash trail by only a few percentage points.

While many investors may indeed struggle to save, it’s important to remember that investors today need comparatively little savings to attain a balanced and diversified portfolio. Risk and liquidity constraints may be satisfied in a variety of ways without forgoing investing entirely.

Chart: The biggest barriers

Take action

The core barriers to reducing a cash allocation involve risk and transparency. A better understanding of the risks involved with investing – and accompanying potential long-term rewards – may give investors the boost in confidence they need.

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