Cash is a position

For most of the decade after 2009, holding cash was a slow leak. Short rates near zero meant every uninvested dollar lost purchasing power by default, and portfolios were managed as if liquidity were free. That world ended when policy rates crossed four percent, and a surprising number of habits have not caught up.

At a four-to-five percent yield, Treasury bills are not the absence of a decision; they are a decision with a known return and an embedded option — the option to buy something cheaper later without having to sell something else first. The option is worth the most exactly when it feels the worst to hold: late in a calm, rising market, when every alternative has been compounding and patience looks like a personality flaw.

The discipline is in the sizing and the trigger. Cash held with no rule for deploying it is just market timing with extra steps. Cash held at a defined share of the portfolio, with rebalancing bands that force buying after drawdowns, is a mechanism. Mechanisms survive moods; opinions often do not.