Cash Drag Calculator
Cash can be useful for liquidity and risk control, but it also changes the compounding path. This calculator compares a portfolio with a cash sleeve against a fully invested baseline using your own return assumptions.
Modeled value with cash drag
$186,977
10 years
Estimated opportunity cost
$9,738
4.95% Drag versus baseline
Starting cash amount
$20,000
Fully invested baseline
$196,715
Drag versus baseline
4.95%
Planning model only. It splits the starting portfolio into a cash sleeve and an invested sleeve, then compounds each sleeve at a constant annual rate. It ignores taxes, inflation, rebalancing, contributions, withdrawals, changing interest rates, market volatility, and the reason a cash reserve may be needed.
Make the cash decision explicit
A cash reserve may be intentional: taxes, near-term spending, emergency liquidity, or a lower-risk allocation. The problem is hidden cash. This model turns the cash weight into an observable opportunity-cost number so the decision is visible instead of accidental.
Compare cash yield with invested return
The most important input is not the cash balance by itself. It is the spread between the cash-yield assumption and the invested-return assumption, compounded over the planning period. A small spread over a long horizon can become a large difference.
What this model intentionally leaves out
The calculator does not forecast markets, interest rates, inflation, or recessions. It also ignores taxes, rebalancing, contributions, withdrawals, account rules, and the behavioral value of holding cash during volatility. Treat the output as a planning estimate, not as advice to raise or cut cash.
FAQ
What is cash drag?
Cash drag is the difference between a portfolio that keeps some money in cash and a baseline where the same money compounds at the invested-return assumption.
Does cash drag mean cash is bad?
No. Cash can serve liquidity, risk-control, tax, or spending needs. The calculator only quantifies the opportunity cost so the reason for holding cash can be judged separately.
Does this model rebalance the portfolio each year?
No. It splits the starting portfolio into cash and invested sleeves, then compounds each sleeve separately. A rebalanced portfolio would need a different model.
Evidence to read next
Use the calculator output with source-backed research, not as a standalone signal.
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