The psychology behind favouring cash instead of investing

Published on September 17, 2026 by Blackstone

Most of our clients already understand why investing forms an important part of their long-term financial plan. That doesn’t necessarily mean it always feels comfortable.

When markets are rising steadily, investing can seem relatively straightforward. It’s when markets become more volatile, headlines turn gloomy and the value of a portfolio falls that our natural instincts can start to work against us.

This is perfectly understandable. Managing risk is something we do throughout life. We check the road before crossing it, insure our homes and generally try to avoid unnecessary danger.

The difficulty is that, when it comes to money, avoiding one type of risk can sometimes simply expose us to another.

Why investment markets can make us uncomfortable

Research from Manchester Metropolitan University suggests that British people are particularly cautious about investing. Excluding workplace pensions, only 23% of people in the UK invest in the stock market, compared with nearly two-thirds in the US.

As an existing investor, though, the more relevant question isn’t whether you should invest. It’s how you respond to the inevitable periods when investing feels uncomfortable.

There are a few psychological reasons why this can be difficult.

1. We tend to notice the bad news

Investment markets move up and down. We know this when we build a financial plan, but knowing something and experiencing it are two different things.

A sharp market fall can make the news very quickly. The subsequent recovery, particularly if it happens gradually over several months, is far less likely to receive the same attention.

This can leave us with a distorted impression of what is actually happening.

It’s one reason we encourage clients not to pay too much attention to the day-to-day noise. Your financial plan is designed around years and decades, rather than what markets happen to be doing this week.

2. Losing money feels worse than making it

There is a well-established behavioural concept called “loss aversion”. Put simply, we tend to feel the pain of a loss more strongly than we enjoy an equivalent gain.

That matters for investors.

If you see the value of your portfolio fall by £20,000, the emotional response can be considerably stronger than the pleasure you might have felt when it previously increased by £20,000.

The temptation can then be to do something: move investments, reduce risk or retreat into cash.

Sometimes changes are sensible, particularly when your circumstances or objectives have changed. But making changes simply because markets have fallen can turn a temporary decline into a permanent loss.

This is where having a financial plan helps. We don’t need to predict when markets will fall or recover. Instead, we prepare for the fact that both will happen.

3. Cash feels reassuring

There is something comforting about money sitting in the bank.

Its value doesn’t appear to bounce around from one day to the next and, importantly, you know you can get hold of it when you need it.

That’s why cash remains an important part of the financial plans we build.

We sometimes refer to this as the “slush fund”: money set aside for holidays, a new car, home improvements, unexpected bills and the other things life has a habit of throwing at us.

Having sufficient cash available can also mean that you aren’t forced to sell investments at an inconvenient time.

But there is a balance.

Holding more and more cash because it feels safer doesn’t necessarily make your overall financial plan safer.

Cash has risks too

The biggest long-term risk of holding cash is inflation.

According to the Office for National Statistics, inflation was 2.9% in the 12 months to July 2026. Even relatively modest inflation gradually reduces what your money can buy.

The Bank of England calculates that £10,000 of spending in 2020 would have required £13,125 by July 2026 to buy the equivalent goods and services.

Of course, savings accounts pay interest, and rates have improved considerably from the exceptionally low levels we became accustomed to. But over long periods, the important figure isn’t simply the interest rate you receive. It’s the return you receive after inflation.

This is why we generally separate money according to what it needs to do.

Money that might be needed in the short term usually shouldn’t be exposed unnecessarily to investment markets. Money intended to support you over the next 10, 20 or 30 years has a very different job.

Your investments are only one part of the plan

This is perhaps the most important point.

We don’t invest money simply for the sake of achieving the highest possible return.

Your investments have a purpose. They might be there to provide an income throughout retirement, help children or grandchildren, fund future adventures or ultimately pass wealth to the next generation.

The investment strategy therefore needs to sit alongside your cash reserves, pensions, tax planning, estate planning and, most importantly, the life you want your money to support.

Periods of market uncertainty are inevitable. We can’t control them and we certainly can’t predict them reliably.

What we can do is prepare.

That means keeping enough accessible money for shorter-term needs, investing longer-term money appropriately, regularly reviewing the level of risk you’re taking and making sure the overall plan remains on track.

So, if markets become uncomfortable, the starting point usually isn’t “what should we do with the investments?”

It’s to revisit the plan.

If your circumstances and objectives haven’t changed, quite often the best course of action is simply to allow the plan we have already put in place to do its job.

Let’s keep your plan on track

If your cash reserves have built up, you’re considering a large withdrawal, or recent market movements have made you uncomfortable about your investments, please speak to us.

We can revisit the numbers, check that the balance between cash and investments remains appropriate, and make adjustments where they’re genuinely needed.

Investing will always involve some uncertainty. Good financial planning is about making sure that uncertainty doesn’t prevent you from getting where you want to go.

Please remember that the value of investments can fall as well as rise and you may get back less than you invested.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.