Should I invest my money now or hold cash?

The 30-second answer

Both, in order: taxes reserved, 12 months of living costs in cash, then invest the rest on a schedule instead of all at once. For an athlete the cash layer is bigger than normal advice suggests because the income can stop overnight.

It's not either/or — it's an order

The question assumes a choice between investing and holding cash. The real answer is a sequence:

• First: the tax reserve. Whatever you owe on money already earned gets set aside before anything else. This money is not yours; it's just in your account temporarily.
• Second: the cash layer. Twelve months of true living costs in cash or equivalents — more if you support family. For an athlete this layer is bigger than standard advice suggests, because athletic income can stop overnight with an injury, a cut, or a lost deal.
• Third: invest the rest — on a schedule. Once the first two layers exist, the remaining money's job is growth, and the boring approach wins: low-cost diversified funds, added at regular intervals rather than all at once.

Why the cash layer is bigger for you

A teacher with a stable salary can hold three months of expenses because next month's paycheck is nearly certain. Your income is the opposite: large, lumpy, and fragile. The cash layer is not "money sitting there doing nothing" — it is the thing that lets you say no to bad deals, survive a zero-income season, and never sell investments at the worst moment. It buys decision time, and decision time is the most valuable asset a young athlete owns.

Why on a schedule, not all at once

Moving a lump sum into markets on one day means your outcome depends heavily on that one day. Spreading it over months trades a little expected return for a lot of regret-proofing — and for a first-time investor, staying invested matters far more than the entry point. The athletes who get hurt are rarely the ones who invested gradually; they're the ones who went all-in, watched a dip, panicked, and sold.

Why this matters

Cash and investments fail differently. Too little cash forces you to sell investments at the worst time or take deals you shouldn't; too much cash quietly loses to inflation for decades. The order of operations exists so a short career can fund a long life without ever forcing a panicked decision.

What changes the answer

• Whether your tax reserve on money already earned is fully funded
• How many people depend on your income, and how fixed those commitments are
• How secure next year's income is — guaranteed contract vs at-will NIL deals
• Whether you already have high-interest debt (paying it beats most investing)
• Your honest reaction to watching an account drop 20% in a bad year

An example

Illustrative example, not a real client.

A rookie has $600k after taxes. Her living costs are $8k a month. She keeps $96k (12 months) in a high-yield savings account, puts $40k against a high-interest car loan, and invests the remaining ~$460k in diversified index funds spread over ten months. Midway through, the market drops 12%. Because her rent and life run on the cash layer, she changes nothing — and the shares she buys that month are simply cheaper.

Common mistakes

• Investing before the tax reserve exists, then selling at a loss to pay the IRS
• Holding three months of cash like standard advice says, when athletic income needs twelve
• Going all-in on one day, then panic-selling the first serious dip
• Confusing investing with exciting deals — restaurants, startups, a friend's fund
• Leaving years of savings in checking, earning nothing, because deciding felt risky

Questions to ask before you decide

• Is my tax reserve for money already earned fully set aside?
• What are my true monthly costs — including what I give family — times twelve?
• If my income went to zero for a year, what would I have to sell or cancel?
• Am I choosing investments, or being sold products by someone on commission?
• What schedule am I committing to, and what would make me break it?

What to do next

1. Fund the tax reserve completely — roughly 30-40% of untaxed income earned so far.
2. Build the 12-month cash layer in a high-yield savings account, separate from spending.
3. Pay off any high-interest debt before investing a dollar.
4. Invest the remainder in low-cost diversified funds on a fixed monthly schedule.
5. Write the plan down — amounts, dates, accounts — so a bad market doesn't rewrite it.

When to bring in a pro

CPA: To size the tax reserve correctly across states and confirm quarterly estimated payments before you lock money into investments.

Advisor: When the investable amount is large enough that account types, tax location, and withdrawal order start to matter — and to be the person who keeps you on the schedule when markets get loud.

Pam's take

Athletes don't go broke because they held too much cash. They go broke because money that should have been boring got exciting. Get the order right — taxes, cash layer, then steady investing — and you've already avoided almost every disaster story you've ever heard.

Written by Pam Rodriguez, CFP®.

Build your next step

Explore more athlete money questions · See the Athlete Wealth System™ · Apply to work with us