How much cash should I hold and what role does it play in the portfolio?

The emergency fund: your safety net, outside the portfolio

Before you even think about investing, it's essential to build up an emergency fund: a pool of cash immediately available to cover unexpected costs — a car breakdown, medical bills, a home repair, a temporary loss of income — without having to touch your investments.

• Target: cover 6 to 12 months of total monthly spending
• Start with 1 to 3 months of expenses and build it up gradually
• Keep it in an easy-access savings account or a fixed-term account with no penalties, separate from your main current account
• Don't invest it in equities: it needs to be available even when markets are down

How big should your emergency fund be

The 6-12 month range is a starting point, not a fixed number: how much you need depends on how stable your income is and your family situation.

• Fixed, stable income (permanent employment, stable sector): a fund towards the lower end of the range, 6-8 months of expenses, is generally enough.
• Variable or self-employed income (freelance, contract work, commission-based income): a larger fund, 9-12 months or more, gives a more realistic buffer for periods of reduced income.
• Single-income household: relying on a single source of household income leaves you more exposed to a job-related setback — better to aim towards the higher end of the range.
• Dual-income household: two independent income sources reduce the risk of both stopping at once, which sometimes allows for a smaller fund.

There's no universally "right" number: the goal is an amount that lets you sleep soundly even if something unexpected happens, without having to sell out of your portfolio at the wrong moment.

Where to keep your emergency fund

The emergency fund should be kept in instruments with immediate access and protected capital — never in equities or equity ETFs, since there's a real risk you'd need it right when markets are down.

The best options: an easy-access savings account or a fixed-term account with no early-withdrawal penalties, kept separate from your main current account so you don't accidentally spend it; plus a small buffer in cash or on your current account for the most immediate costs (a car breakdown, urgent medical bills).

As covered in more detail in the Basics, a short-term fixed-term deposit or short-dated government bonds can also make sense for part of the fund, if you're confident you won't need it immediately — but the most liquid portion should always stay accessible within a few days, with no penalties.

The Cash component in the portfolio: a different role

Once the emergency fund is in place, the Cash component inside the invested portfolio (typically 0 to 60% depending on your profile) serves a different function: it acts as a buffer for rebalancing — you sell equities when they've risen too much, buy with Cash when they fall — and, in the income phase, it's the first source to draw from, letting equities keep working.

The Cash component's role stands out in particular during periodic rebalancing (every 3-6 months, typically with asymmetric thresholds: you buy when the equity share drops below the target threshold −5%, you sell when it rises above the target threshold +10%). When the equity share drops below the buy threshold, there are two ways to bring the portfolio back to target: use the Cash already sitting in the portfolio, or inject fresh capital — cash from outside the portfolio, coming from monthly savings or money you've set aside — to buy equities at the discounted price without touching the Cash you've already built up. This second option is often preferable when available: it lets you take advantage of the dip to buy at a discount, while keeping your Cash buffer intact for future rebalancing, rather than drawing it down every time the market falls.

How much Cash to hold in your portfolio, by life stage

The ideal Cash share inside your portfolio depends on your financial life stage, exactly as with the Global Equities / Cash allocation described in the Strategy:

• Young saver: 100% Global Equities. With a long horizon ahead and no withdrawals planned, portfolio Cash is often unnecessary — the outside emergency fund is enough to cover the unexpected.
• Family in accumulation: 80% Global Equities · 20% Cash. A small Cash share starts acting as a rebalancing buffer, without slowing capital growth too much.
• Approaching retirement: 60% Global Equities · 40% Cash. As the horizon shortens, Cash grows to reduce volatility and prepare for the withdrawal phase.
• Retiree with income: 40% Global Equities · 60% Cash. Cash becomes the first source to draw from, letting equities keep working without having to sell them at unfavourable moments.

These percentages are a reference, not fixed rules — your ideal allocation also depends on your personal risk tolerance, not just your life stage.

Common mistakes to avoid

• Confusing the two reserves: using portfolio Cash for an everyday unexpected cost — or, the other way round, treating the emergency fund as part of your investment strategy — leaves you unclear on how well protected you actually are.
• Holding too much idle cash: a 24-month emergency fund, or a portfolio Cash share that's oversized for your profile, needlessly reduces your expected long-term return.
• Not holding enough: too small an emergency fund, or a portfolio Cash share that's too thin for your life stage, can force you to sell equities right in the middle of a downturn — precisely the scenario these reserves are meant to prevent.
• Investing the emergency fund in equities to "make it work harder": this defeats its purpose — it needs to be available and stable exactly when you need it, not just when the market happens to be up.