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Cash Reserves – Why Doing Nothing Might Be the Biggest Financial Risk You Take

There’s a moment in almost every client conversation where we talk about cash. It usually sounds something like this: “I know I probably should invest it… but I’d rather just keep it in the offset for now.”

And to be clear, that instinct isn’t wrong. Whether it sits in a savings account, offset account, or term deposit, cash can provide a feeling of certainty and flexibility, and particularly following a few years of higher interest rates and plenty of noise in markets, it’s been easy to justify sitting on the sidelines.

But here’s the part that often gets overlooked: Doing nothing is still a decision. And over time, it can be a costly one.

The Quiet Erosion of Wealth

One of the biggest challenges with cash isn’t volatility. It’s invisibility.

Unlike markets, which move daily and demand your attention, inflation works quietly in the background. It doesn’t show up as a drop in your account balance. Instead, it gradually reduces what your money can actually buy over time.

If your lifestyle costs $100,000 today, that figure is unlikely to stay the same over the next 10 or 20 years. The cost of living, housing, healthcare, insurance, groceries all creep higher. And if your capital isn’t growing at a rate that meaningfully outpaces that, your future flexibility shrinks.

That’s the real risk – not losing money overnight, but slowly losing purchasing power over time.

The Illusion of “Good” Cash Returns

A common theme we’re seeing at the moment is people feeling relatively comfortable holding cash because interest rates are “decent”. On the surface, that’s fair, but when you strip it back, what matters isn’t the headline return, it’s the real return. Once you factor in inflation and tax, the actual increase in purchasing power from cash can be marginal.

At the same time, markets are already forward-looking. Bond markets, in particular, tend to price in expectations for future inflation and interest rates well ahead of time. That means by the time rate cuts or market stability become obvious, a lot of the opportunity in growth assets may already have been captured.

Waiting for certainty often means paying a premium for it.

The Real Cost of Sitting on the Sidelines

This is where opportunity cost becomes important.

Every year that capital sits idle it isn’t compounding, it isn’t participating in market recoveries, it isn’t working toward your long-term objectives and it’s not compounding! Which over particularly over long timeframes is one of the most powerful drivers of wealth creation.

We often talk about “risk” as market volatility, but for long-term investors, the bigger risk can actually be not being invested at all. Especially when you have a 10, 15, or 20+ year time horizon, time in the market will always matter far more than timing the market.

Planning, Not Guessing

This is where good financial planning comes in, because this isn’t about “all-in” investing or removing cash entirely. Cash absolutely has an important role that provides for emergency reserves, short-term splurges and flexibility during periods of uncertainty.

Problems tend to arise when cash becomes the default, rather than part of a deliberate strategy, and therefore balance is important. Any plan must have enough liquidity to feel comfortable, while maintaining sufficient growth exposure to outpace inflation and keeping your strategy aligned with your future goals and priorities rather than reacting to headlines or short-term market moves.

Practical Ways to Combat Inflation

When speaking with clients, there are several ways we like to tackle inflation. The solution often isn’t a single decision, it’s a series of small, informed ones. A few areas worth thinking about:

1. Be deliberate with surplus cash
   Holding funds in an offset account can be highly effective, particularly when mortgage rates are going up. But beyond a certain level, excess cash may no longer be working efficiently. That’s where structuring investments alongside your lending strategy can add value.
2. Phase into markets rather than waiting
   Instead of trying to pick the “right” time, consider staged investing. It removes the pressure of timing decisions and gets capital working sooner.
3. Use superannuation strategically
   For many professionals, super remains one of the most tax-effective investment environments available, especially in light of the recent Federal Budget announcements on capital gains tax and negative gearing! Contributions, when appropriate, can provide enormous tax efficiency and long-term compounding benefits.
4. Align investments with timeframes
   Short-term money should behave differently to long-term capital. When this gets blurred, you can end up holding too much in cash simply for comfort or have all your money invested in volatile growth assets without sufficient buffer for emergencies.
5. Revisit your plan regularly
   What felt like the right level of cash 12–24 months ago may no longer be appropriate today, particularly as rate and inflation expectations shift.
6. Review spending and cut unnecessary expenses
   Investment strategy matters, but so does managing what goes out the door. Regularly reviewing your household spending can help identify subscriptions, services, or habits that no longer add real value. Trimming unnecessary expenses can free up cash flow, improve resilience, and create more capacity to save or invest toward your longer-term goals.

The Bigger Picture

The goal isn’t to eliminate risk – it’s to take the right risks, for the right reasons, at the right time.

Cash can protect against short-term uncertainty, but growth assets are what typically protect against long-term erosion. The challenge and the opportunity is finding the right mix for your situation.

A Thought to Leave You With

One of the most consistent patterns we see is this:

People rarely regret having a well-thought-out plan, but they often regret waiting too long to put one in place.

If you’re worried about inflation, or simply not feeling confident about whether your current strategy is working as hard as it should, it’s worth a conversation. Not about chasing markets, not about taking unnecessary risk but about making informed, deliberate decisions that support your long-term objectives.

If you’d like to sense-check where you’re at, our experienced team of financial advisers at McKinley Plowman are happy to have a chat, no pressure, just a practical conversation about what’s working, what isn’t, and what could be done differently. To speak with an adviser, contact the team on (08) 9301 2200 or visit McKinley Plowman.

Please note the information provided within this article is general of nature and is not a personal advice recommendation. Prior to considering strategies discussed in this article we recommend you seek personal financial advice. Please be aware that, without the benefit of financial advice, you may be committing yourself to financial strategies or products that are not appropriate for your overall personal situation, needs and objectives.

written by:

Will Lyons

Will has over 20 years of industry experience, including a consultancy role in the UK advising corporate pension schemes. Specialising in advising high net worth individuals and families, Will delivers bespoke strategies across family office structuring, private foundations, retirement, and succession planning.

Combining a client-focused approach with a deep understanding of their needs, Will has helped clients to establish and build significant wealth across complex financial structures, whilst effectively managing risk.

Will is an Authorised Representative of Fortnum Private Wealth Ltd.