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When saving for retirement, one rule of thumb is the longer there is until you retire, the more risk you can generally afford to take.

That often translates to keeping more of your money invested in stocks, since the younger you are, the more time you have to ride out the stock market’s ups-and-downs — and ideally build wealth. Then, as you get closer to retirement, it’s often considered safest to pare back riskier holdings, keeping more in cash.

But data from retirement services firm Empower suggests young people aren’t necessarily heeding that guidance. Cash is king for twenty-somethings, with investors in their 20s holding 34% of their assets in cash — more than any age group except retirees 70 or older, according to Empower’s Sept. 30 figures.

It’s not for lack of spare cash (the median cash balance for investors in their 20s is just over $29,000), so it seems more likely that these young people are wary of taking on risk — especially considering that many of them came of age over the past five years, as the pandemic and geopolitical turmoil fueled economic uncertainty.

But just as investing comes with risk, there is a risk to not investing enough.

“Time can either be your best friend or worst enemy,” said Brian Walsh, a Certified Financial Planner® and SoFi’s Head of Advice & Planning. “Make it your best friend by investing early so your money has more time to grow.”

While some advisors recommend keeping between 2% and 10% of your portfolio in cash (and cash equivalents), the right mix of cash versus investments will depend on many factors, including your financial goals and your risk tolerance.

Here are some things to consider as you gauge it. (Remember, there’s always a risk-reward tradeoff.)

Decide what you actually need to have in cash. Financial advisors generally recommend having enough liquid cash to cover three to six months’ worth of living expenses, in case something unexpected happens. It may make sense to hold onto even more if your income isn’t steady or if you’re making a big purchase (like a house) soon.

Consider your risk tolerance. People talk about the opportunity cost of not investing in the U.S. stock market because despite its ups and downs — especially in recent months — the S&P 500 index has trended up over time. Returns vary widely, but historically, the average annualized return is about 10% per year, or 6% to 7% after inflation (not accounting for fees, expenses, and taxes).

Ask yourself what you want to achieve with your investible assets. Are you happy collecting interest in a high-yield savings account, or are you willing and able to take a risk and invest it in the market in exchange for the possibility of higher returns?

Don’t forget inflation. Cash tends to lose value over time because of inflation. And although holding on to large sums can shield you from volatility, you’re giving up potential growth along with potential losses. If you don’t need the money right now, putting it to work can help you reach your goals faster (think buying a house, saving for your kid’s college tuition, or having financial security in retirement).

Weigh your time horizon. Whether it’s retirement or something else, it’s key to know how long you have before you’ll need to cash out of your investments. One approach is to subtract your age from 110 to gauge how much money you should keep in stocks. For example, if you’re 25, you would keep 85% of your money in stocks because 110-25 = 85.

Bottom line: There is no single strategy that works for everyone, or even one strategy that works for a lifetime. The best approach is to reassess as you get older and as your goals and financial situation shift.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

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