Experts advise against holding too much cash, as it may lead to regrets.

• Cash savings are getting the best guaranteed returns in years.
• Yet stocks are also climbing to all-time highs.
• Experts advise that holding too much cash can hinder you from gaining benefits.

Recently, investors were able to earn almost no returns on their cash holdings.

High inflation has prompted the Federal Reserve to maintain high interest rates, allowing you to earn 5% annual percentage yields on low risk savings accounts and other vehicles.

Experts caution that being too reliant on safe returns may prevent individuals from seizing opportunities for higher market gains.

Last week, Callie Cox, the chief market strategist at Ritholtz Wealth Management, wrote that we are too fixated on money.

An estimated $6 trillion in cash is parked in money market funds.

Younger investors, who have the longest time horizon to absorb risk, are allocating the most to cash, according to industry research.

The U.S. stock market is experiencing a 'concentration' issue. Americans are having a hard time getting out of a 'vibecession'. 'Super savers' in the U.S. have the largest 401(k) balances.

A recent study by Bank of America revealed that more than half of wealthy younger investors aged 21 to 43 increased their cash allocations in the past two years, compared to 46% of individuals aged 44 and above.

Younger investors are twice as likely as their parents' generation to have increased their cash assets, according to a survey by trading and investment platform eToro. The survey polled 1,000 U.S. retail investors as part of a bigger pool of 10,000 in 13 countries, and respondents held at least one investment product.

Cox stated in an interview with bizfocushub.com that the issue that is not being discussed enough is the fact that young investors are overinvesting in cash due to the temptation of the 5% savings rate.

"Younger investors are more likely to take on the risk of under-investing, according to Cox," he stated.

'Day of reckoning' for savers may be coming

A 5% return on long-term investments in stocks may not fully realize the potential gains that can be achieved through a more aggressive allocation to stocks, which could result in an average annual rate of return of 7%. The actual return may fluctuate from year to year.

According to Thomas Lee, managing partner at Fundstrat Global Advisors, the S&P 500 index may increase to 5,800 by the end of this year, resulting in a total return of more than 20% for the year, as stated on CNBC's Squawk Box on Monday.

Lee explained that if the index returns 24% in 2023, bringing the total for both years to around 50%, it would be "painful" for cash investors who missed out on those gains, as it would take them 10 years to achieve the same results.

According to Lee, the conclusion of this year may serve as a moment of reckoning for those who have claimed to be content with their $6 trillion in cash earning 5%, as the economy's expansion may continue for an extended period if it does not enter a recession.

Not all experts are as optimistic, however.

If a recession occurs, BCA Research predicts that the S&P 500 may decline by more than 30% by the end of the year.

How much cash savings you need

Experts suggest that all investors should have some cash set aside. Financial advisors typically recommend having at least three to six months' worth of expenses in cash in case of an emergency.

A recent survey from financial services company Empower reveals that Americans have a median emergency savings of just $600, which often falls short of the goal.

According to Bankrate's recent findings, 67% of Americans with cash savings are still earning less than a 4% annual percentage yield.

It is advised to save money for goals that are one to two years or even three to five years away, according to Cox.

Cox stated that he would consider investing in stocks or other risky assets for anything beyond five years.

Market timing is 'a fool's errand'

One reason why investors may be hesitant to invest is due to fear.

The bigger opportunity cost may be the risk of missing the market upside, experts suggest.

According to Mark Hamrick, senior economic analyst at Bankrate, both market timing and lack of participation in the market are foolish, particularly for long term investors.

Cox stated that while there is a possibility that the markets could either continue to rise indefinitely or experience a 50% drop, these are the extreme cases.

Cox stated that if you remain in cash, you may have to wait a considerable amount of time for the pullback.

The greatest danger for investors currently is not experiencing another leg of this rally, she stated.

The Federal Reserve has hinted at the possibility of reducing interest rates in the future, which could impact the environment for cash savings.

If you want to lock in a five-year certificate of deposit at today's rates, you may need to pay a penalty if you want to access that money sooner than five years, Hamrick said.

"Hamrick stated that yields for CDs, high yield savings accounts, and money market accounts will remain high, while rates are likely to decrease but not drastically, falling gradually like a feather."