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In volatile markets, why sitting on cash can be the smart play
Holding cash in a volatile market feels much like standing at the edge of the water while everyone else is swimming. You’re waiting for the right moment to go in, but you’re scared it will be too cold.
It’s a dilemma facing many investors right now. Markets have bounced off recent lows, headlines shift daily, interest rates remain elevated and asset class correlations are more unpredictable than ever. There is a strong temptation to “do something” with your idle capital.
But the question isn’t about allocating this capital – it’s how, when and where.
Why you’re holding cash in the first place?
Cash is often seen as the enemy of returns. But that mindset ignores what cash really represents: choice. It’s not just a passive asset – it’s keeping your powder dry and giving you flexibility.
In a market full of noise, holding cash is often the smartest expression of patience and discipline – especially if your goals involve wealth preservation and not just growth.
If you’re holding cash right now, it’s likely for one of three reasons: You’ve recently taken a profit or rotated out of an asset that’s run too hard; you’re concerned about current valuations or macro risks; or you’ve got new money to invest and aren’t convinced now is the time.
All these reasons are legitimate. What matters next is how you deploy it, not just that you do deploy it.
Where can your cash go
Let’s explore your main options – and the logic behind each one:
- Stay in cash (for a bit longer). In 2025, holding cash isn’t the drag it once was. Term deposits, high-interest savings accounts and treasury ETFs are paying between four and five per cent in many markets. For risk-averse capital or shorter time horizons, this isn’t dead money – its capital earning a solid return while waiting for better opportunities.
- Short-term bonds and credit: With interest rates still elevated, quality short-duration fixed income is offering strong yields with less sensitivity to rate shocks. Investment-grade credit, cash ETFs or even corporate hybrids can offer attractive income while you remain defensively positioned.
- Dollar-cost averaging into equities: Rather than trying to pick the bottom (and potentially catching a falling knife), a disciplined dollar-cost averaging approach allows you to gradually re-enter the market while smoothing out volatility. For long-term investors, this can help you avoid the regret of going all-in too early – or staying out too long.
- Look overseas: While the US market remains dominant, many investors are starting to question its valuations. Europe and parts of Asia may present better entry points, both from a value and macro policy perspective. Cash allows you to be opportunistic here – ready to move when the data turns.
- Alternative assets: Private credit, infrastructure, agriculture and real assets continue to attract capital, especially from high-net-worth and institutional investors. These asset classes may offer inflation protection and uncorrelated returns – although they require longer timeframes and due diligence.
What not to do
Avoid rushing into assets just because they’ve rallied or are being hyped. These include tech stocks trading at multiples that only make sense in zero-rate environments; property markets that haven’t fully repriced post-rate hikes; thematic funds that are more trend than substance; and tips from podcasts, social media or chat threads that aren’t backed by real research. Always remember, cash isn’t the problem. Poor allocation is.
Timing still matters – but it’s not everything
Trying to time the absolute bottom of the market is a fool’s game, but timing does matter. The key is to watch for inflection points – shifts in policy, earnings, liquidity or sentiment that suggest the tide is turning. Don’t confuse a bounce with a recovery. And don’t confuse FOMO with strategy.
The bottom line: Holding cash is not a sin. In times of uncertainty, it’s often the most under-appreciated asset in your portfolio. The best investors aren’t always those who act the fastest – they’re the ones who act with the clearest purpose.
