Funds & wrappers
Cash drag
The return lost by holding cash in a fund or portfolio rather than being fully invested.
How it works
Funds hold cash to meet redemptions and to fund new positions. In a rising market that cash earns less than the assets it could have bought.
The same applies to a private portfolio: money waiting to be invested is money not compounding.
Related terms
- Mutual fundA fund that creates and cancels units on demand, priced once a day at net asset value.
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- ReturnWhat an investment gained or lost over a period, as a percentage of what it was worth at the start.
- Purchasing powerWhat your money can actually buy, rather than how many units of currency you have.
Mentioned in
More in Funds & wrappers
- Distribution
- Active share
- ETF
- Active management
- Expense ratio
- Transaction costs
- Factor investing
- Target-date fund
All 25 Funds & wrappers terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.