STUDY
Cash Drag: T-Bills vs Being Invested
Sitting in “safe” T-bills feels good in rough markets, but it quietly slows compounding. This study shows how much growth you leave on the table versus staying invested.
Educational content only. Not personalized investment advice.
TL;DR
- T-bills / timed-out cash = low drawdowns but low long-run growth.
- Staying invested in stocks = bigger swings but meaningfully more compounding.
- A “temporary” cash park that lasts years can cost more than one bad year in stocks.
Method
We compare two simple paths over the same timeline:
- Always Invested: 100% in a broad US stock index (think SPY), dividends reinvested.
- Always in T-Bills: 100% in a short-term Treasury/T-bill proxy (cash-like), rolling from one bill to the next.
Data is modeled using monthly total returns (price + income), ignoring fund expense ratios and taxes. Both paths start at 1.00× and stay in their lane the whole time—no timing tricks or mid-sample switches.
The chart and table use stylized paths for a 2021–2024 window to illustrate “cash drag.” They are not a precise recreation of any specific ETF, rate history, or backtest.
Notes
- “T-bills” here means a safe, low-volatility, low-yield cash alternative (short-term Treasuries / cash-like instruments).
- No shifts from cash to stocks mid-sample: each path stays fixed so we isolate the gap between staying safe vs staying invested.
- The chart and table use the same stylized paths; numbers are rounded so the focus stays on the trade-off, not exact decimals.
- Educational illustration only. Not personalized investment advice or a forecast.
Key chart
Normalized growth of “Always Invested” versus “Always in T-Bills.” Both start at 1.00×. The widening gap is the cost of playing it safe for the whole path.
Stylized chart for intuition. Real outcomes depend on the exact period and instruments used.
What the data says
Stocks move up and down but (historically) have a higher expected compounding rate. T-bills barely move. The result is a meaningful gap in ending wealth even though the T-bill path rarely “hurts.”
This is the trap: cash feels safe now, but it quietly locks in a slower compounding rate. The damage isn’t obvious month-to-month; it shows up after years.
The summary table below gives rough numbers on growth vs risk for the two paths.
When cash drag is most dangerous
- You tell yourself you’ll “wait for a better entry,” then sit in cash for years.
- You park decade-plus money (retirement, long goals) in T-bills because markets feel scary.
- You chase headlines and keep “temporary” cash that never actually goes into the plan.
- You underestimate how much a few extra % of return matters over 10–20+ years.
When T-bills actually make sense
- Money you truly need soon (rent, taxes, a planned big purchase).
- Your emergency fund—cash is the point there.
- Short “in-between” periods while you move accounts or clean up your allocation.
- If volatility reliably makes you panic-sell, and you need a risk dial you can live with.
Separate short-term safety money from long-term growth money. Cash/T-bills are for the first bucket, not the second.
Summary
| Series | CAGR | Max DD | Worst 12-mo |
|---|---|---|---|
| Always Invested (stocks) | ≈5.1% | ≈−5.5% | ≈−4.8% |
| Always in T-Bills | ≈1.9% | ~0.0% | ≥0.0% |
Illustrative values consistent with the stylized 2021–2024 chart paths. Real-world results depend on the exact period, instruments used, and actual interest rates.
Bottom line
Cash and T-bills are tools, not a default parking lot for everything. Use them to protect short-term needs. For long-term goals, staying invested matters more than feeling safe this month.
Go back to the Learn path →CLUSTER
Next steps: get invested correctly (behavior beats optimization)
The practical compromise: invest sooner without “all-in fear.”
The expected-return reality: time in market usually wins.
A simple step-by-step workflow that reduces “stuck in cash” risk.
Cash drag is often the #1 beginner mistake in disguise.
CLUSTER
Next steps: reduce friction (fees, FX, and execution)
If investing feels expensive/annoying, you delay. Remove the friction.
Repeated conversions behave like a recurring fee and compound against you.
Bad execution is another “silent drag” that stacks with cash drag.
Automation reduces decision fatigue and keeps cash from piling up.
FAQ
How much cash is too much for a long-term investor?
Enough for an emergency fund and near-term bills is sensible. Keeping many years of long-term money in cash or T-bills is typically too much, because you give up most of the compounding you actually need.
Compare with Why Invest: How Compounding Grows Small Money.
Are T-bills always a bad choice for investors?
No. T-bills are useful for short-term goals, emergency funds, or temporary parking. The problem is leaving long-term money there indefinitely.
What if I am scared to invest a lump sum all at once?
Fear of bad timing is normal. A fixed DCA schedule over several months can move you into the market without sitting in cash for years waiting for a “perfect” entry.
Should I hold cash in my brokerage account or in a bank?
Emergency and day-to-day cash is often best in insured bank accounts. Investment-plan “cash buckets” can sit in a broker via money-market or T-bill vehicles. The bigger issue is not the container—it’s leaving long-term money uninvested.
Ready to put long-term money to work? Move what’s truly long-term out of “forever cash” and into a real portfolio you can actually hold.
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Want to see this with real ETFs? Use TradingView to chart a stock index ETF versus a T-bill or money market proxy and see the gap yourself.
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Educational content only. Not personalized investment or tax advice.
Investments can lose value and past performance does not guarantee future results. You are responsible for your own decisions and for confirming tax and legal rules in your country.