If you Google “How much cash are corporations holding?” you’ll learn that roughly $2 trillion is “sitting” or “parked” on corporate balance sheets. While the figure is correct, companies don’t just sit on or park cash—they manage it. They ensure their liquidity needs are met, and then they tap investments with diverse risk profiles to optimize return.

Proactively managing cash can be as beneficial to you as it is to businesses, but too many of us take a laissez-faire approach to cash. Until relatively recently, treating the management of cash as an afterthought didn’t necessarily mean missed opportunities, as historically low interest rates pressured cash yields. But now those yields have climbed, making a set-it-and-forget-it approach to cash more costly, says Iain Hollyhoke, a Cash Management Specialist at J.P. Morgan Private Bank.

“When the yields on cash were at zero, you didn’t have to think much about where you held it,” says Hollyhoke. “But with yields now in positive territory, investors with large cash positions are leaving money on the table if they’re not paying attention.”

To take full advantage of today’s more attractive yields, take a page from the corporate playbook and manage your cash to complement your portfolio. This approach considers the full range of cash vehicles, including checking and savings accounts, certificates of deposit, CD ladders and money market funds.

To help you meet your financial objectives, you can work with an advisor to structure a customized cash management strategy that aligns with your time horizon, amount needed and priority for each of your goals. Blending multiple cash investments with diverse risk/reward profiles can help improve returns while still preserving principal and maintaining liquidity.

How much is enough?

The first step is to determine how much cash you need to keep available, which most investors find difficult, partly because of the psychology around cash, according to Michael Liersch, Head of Wealth Planning and Advice at J.P. Morgan.

“For some investors, having a lot of cash on hand provides psychological security. But this may lead them to wonder if there may be more productive ways to put their cash to work,” Liersch says. “Others may be concerned they hold too little cash because they tend to gravitate toward investments that have the potential to offer higher returns."

To help his clients determine the optimal allocation to cash, Liersch employs a framework that segments or “buckets” cash, a strategy favored by corporations and other institutional investors. With cash bucketing, a predetermined amount of cash is set aside to meet different types of goals—immediate versus longer-term; unexpected versus scheduled, etc. The nature of the objectives drives the choice of investments for each of the following buckets:

Day-to-day cash. This is for everyday expenses such as utilities and groceries, a visit to the vet or car repairs. Checking accounts are the perfect vehicles to hold this cash because the cash is secure and readily accessible through multiple channels (e.g., debit and ATM cards, mobile apps).

Reserve cash. Reserve cash is slated for short-term and generally predictable expenses, such as insurance premiums, school tuition or tax payments. Reserve cash doesn’t need to sit in accounts that offer daily liquidity, which presents opportunities to pick up yield. For example, if you know you have a property tax payment in three months, you might invest that payment in a three-month certificate of deposit (CD), which offers a better yield than a checking account because the cash is tied up for 90 days.

“If I know when a payment is due, I’d put it in a CD with a maturity that aligns to the payment date and pick up some incremental yield,” Hollyhoke says.

Strategic cash. Like reserve cash, strategic cash can be invested in higher-yielding vehicles. Strategic cash might include the proceeds from the sale of a business or property, or it might be cash you set aside for an investment opportunity. An appropriate investment vehicle for this cash may be an ultra-short-term bond fund, which invests in high-quality, short-dated securities, such as Treasury bills, investment-grade corporate debt and asset-backed securities. Ultra-short-term bond funds are riskier than money market funds and as a result typically offer higher yields.

“With a short-term bond fund, you’re moving from cash to fixed income investments, so price volatility can be higher, but the instruments in these funds typically have short maturities and high credit quality,” says Irena Alagic, a Global Fixed Income Specialist at J.P. Morgan Private Bank. “That makes them a good option for investors who can accept a little more risk to pick up additional yield.”

Another investment Alagic recommends for strategic cash is a separately managed account (SMA), which can include the same high-quality instruments populating short-term bond funds, but “because you own individual securities rather than shares of a fund, you get more visibility into your holdings with an SMA,” Alagic says. "Whether you invest strategic cash in an ultra-short-term bond fund or an SMA, you should plan to hold the investment for at least nine months," Alagic says.

Maximizing the value of cash

Cash yields are higher today than they have been in years, making cash a true asset again. To fully leverage the benefits of these higher yields, however, investors need to actively manage their cash, drawing on investments residing all along the risk/reward spectrum. Put simply, to extract maximum value from cash, investors should view it as the foundation of their approach to reach their overall financial goals.

We look forward to an opportunity to discuss this in more detail, and to work with you to see how a cash management strategy might be most effective as a part of your wealth plan. For more information, please contact your J.P. Morgan representative.