There is a long-running debate in the investment world about what to do with cash, and few figures capture the two sides of it better than Ray Dalio and Warren Buffett. Dalio famously declared that “cash is trash”, arguing that sitting in it is a slow, silent way to lose money and that investors who cling to it are simply giving up returns they will never get back. Buffett takes a different view. Drawing on the old proverb that a bird in the hand is worth two in the bush, he argues that cash is nothing to be ashamed of; it is a position of strength. Having it available means you are never forced to sell, never caught off guard, and always ready to act when the market hands you an opportunity.
The two positions are less contradictory than they first appear. Both men agree that cash left idle indefinitely is a mistake. Where they differ is in how much respect they give to the value of being ready. Understanding when each of them is right can make a meaningful difference to your long-term wealth.
Start with the case for cash, because there are times when it is genuinely the most attractive place to be. That happens when two conditions align: interest rates are high enough to pay a real return after inflation, and shares are priced too high to reward the risk of owning them. When both hold, cash is not a cautious retreat but the rational choice.
This is where the South African experience differs meaningfully from most of the developed world. After the 2008 financial crisis, central banks in the United States, Europe, Japan and the United Kingdom held interest rates at or near zero, and some — notably Sweden, Denmark, Switzerland and the eurozone — pushed them negative, effectively charging savers to keep money in the bank. There, cash was a guaranteed way to lose purchasing power. South Africa has been a different story altogether. The Reserve Bank has kept rates well above inflation through much of the same period, so local money market funds have regularly beaten the cost of living. For a South African investor, cash has at times been a genuinely competitive place to be, particularly when local share valuations looked stretched.
The second argument for holding cash is what investors call “dry powder”: keeping money available so that when markets fall sharply and good assets become cheap, you can buy them. Those who had cash on hand during the 2008 crisis and the 2020 pandemic selloff were able to pick up quality shares at heavily discounted prices. The value of that cash was never in the interest it earned while sitting idle; it was in what it allowed them to do when the moment arrived.
So far, so reassuring. The trouble is that the same two virtues turn into the two most expensive mistakes an investor can make.
Take the competitive return first, because for South African investors this is where the real damage is done. Local money market funds may beat inflation, which feels like a win, but the JSE and global equity markets have delivered returns over long periods that dwarf what cash can offer. An investor who held a meaningful cash allocation through the post-2008 bull market, or through the recovery that followed the 2020 selloff, did not simply earn a little less. They missed some of the most powerful compounding the market has ever produced — years of growth that cannot be recovered. Inflation-beating cash returns create a false sense of progress: the investor sees a positive real return and concludes they are doing the right thing, while quietly falling further and further behind the portfolio they could have had. Feeling safe and building wealth are not the same thing.
The dry powder argument carries its own trap, and it is the more overlooked of the two. Holding extra cash because you think the market is about to fall is really a bet that you can predict two things correctly: when to get out, and when to get back in. The evidence suggests that very few investors, even professionals, can do this reliably. Markets tend to deliver most of their returns in short, sharp bursts that are almost impossible to anticipate, and research consistently shows that missing just the ten best days over a decade can roughly halve your long-term returns. What makes this so painful is that those best days almost always sit right beside the worst ones, during the recovery from a sharp selloff. The investor who moved into cash because falling markets frightened them is precisely the investor most likely to miss the rebound. This is the real meaning behind “time in the market beats timing the market” — not a slogan, but a conclusion backed by decades of data.
Part of the confusion comes from treating all cash as the same thing, when the reason an investor is holding it changes everything about whether the decision is sensible or costly. Cash held for a specific purpose — an emergency fund, an upcoming expense, a known future liability — is entirely rational regardless of what markets are doing. That is not an investment decision; it is sound financial planning, and it usually sits over a short horizon, typically under eighteen months. Cash held as a deliberate investment view is different again: an investor who reduces their exposure to shares because they genuinely believe the market looks expensive, and who has a clear plan for when to reinvest, can add real value — provided they have the discipline to follow through. Tactical cash that never gets deployed is just a drag on returns with a confident story attached. The third kind is the most common and the most damaging: cash held out of anxiety, because the investor is nervous about markets or simply unsure what to do. It tends to pile up precisely during the periods when staying invested would have been most rewarding, and it is the holding the evidence argues against most clearly.
Buffett’s bird-in-the-hand framing is useful here, but it cuts both ways. Yes, cash gives you certainty and the ability to act. But while you are holding that bird, the bush is filling up. Every year in cash is a year in which equities, property and other growth assets compound without you. For a South African investor, cash does at least pay a real return while you wait, which is more than most developed-market investors could say over the past two decades — but that is a consolation, not a strategy. The comfortable feeling of earning something on cash can mask the far larger cost of not being invested in the assets that build wealth over time.
So where does cash belong? For South African investors it occupies an unusual position. Unlike in most developed markets, where holding it has meant quietly losing ground to inflation, local money market returns have regularly beaten the cost of living. That genuine advantage means the JSE’s volatility need not be endured in full at all times; there are legitimate windows where sitting in cash while markets look expensive, or while a sharp drawdown plays out, is a rational and even profitable decision.
But that advantage is no substitute for being invested. Over horizons of five years and longer the data is unambiguous: equities, for all their discomfort, have compounded wealth at a rate cash cannot match. Every year spent in cash — even cash that beats inflation — is a year the real engine of long-term wealth creation sits idle. The feeling of safety is real, but so is its cost, and that cost is far larger than most investors appreciate. The most important question is not “is cash a good idea right now?” but “what specific conditions will make me deploy it, and do I have the discipline to act when they arrive?” South African cash can be a legitimate short-term holding and a genuine source of optionality. But optionality that is never exercised is just another word for hesitation, and hesitation, compounded over years, is one of the most expensive mistakes an investor can make.
This is ultimately where a financial planner earns their keep. Knowing when sitting in cash is the sensible call, and when being fully invested is the necessary one, is rarely obvious and almost never the same answer for two different people. Every client arrives with their own goals, time horizons and appetite for risk, which means the right balance between cash and investments genuinely looks different from one person to the next. A planner’s real value lies in helping you read your own situation honestly, and act on it with confidence rather than fear.
By James Tucker, Investment Analyst at WealthStrat