For most people, cash feels like a weighted blanket. There’s comfort in knowing its value while it collects interest in a bank account, accessible at any time.
It’s not easy to convince your partner to assume more risk after he’s used to a certain level of security. Cash looks good, interest rates are attractive and recent market history doesn’t provide much comfort. The Great Financial crisis and the pandemic left people looking over their shoulders and worrying about the next black swan event. Cash isnt’ just security – it’s an opt out from the drama.
When your partner is more risk averse than you, make sure to hear them. Understand and respect their reasons for feeling the way they do.
For our client families, we generally advise holding six to nine months of living expenses in cash. We would put aside cash for short term liquidity needs. The short term can be up to five years in the future. This would include major purchases such as a deposit for a house, paying off the mortgage or a child’s wedding.
Beyond that though, sitting on too much cash, blinds you from chances to grow your wealth.
Use your long-term goals as a gateway to your conversation because they probably require greater returns than cash and deposit rates may not always be this high in the future. The more specific the better. Is it saving for a holiday home or a once in a lifetime round the world trip?
Then use publicly available data to drive it home. According to Dimensional Fund Advisor’s Matrix book, The MSCI World Index for example has returned on average 10.8% a year from 1970 to the end of 2022 while Global bonds (BBG global aggregate Index) have returned 6.3%. £1,000 pound invested in the MSCI World in 1970 would be worth 233,000 pounds today.
Paring your jointly held long-term goals with actual data, makes the prospect of investing less conceptual and more concrete. It’s harder to ignore the possibilities when they’re personal.
Compromise matters. So maybe the answer is holding onto two year’s of expenses worth of cash and investing the rest. Or maybe monthly investing in a more cautious portfolio. Any progress is progress. People don’t change overnight and you shouldn’t expect them to
But that doesn’t mean you can’t do better, just like your cash.