Performance & Return
Cash Drag
Definition
The performance reduction caused by holding uninvested cash that earns less than the portfolio's investment return.
Cash drag is the return dilution created when low-yielding cash balances occupy too much of the portfolio relative to target deployment.
Why it matters
It is a silent cost. Cash that sits idle subtracts from real return without appearing as a loss in any broker dashboard.
What most investors miss
The gap between what the term means and how it is usually applied.
They do not count cash as part of the portfolio return calculation. Every broker shows uninvested cash separately from performance.
How to read it
Calculate return on total capital including cash. The difference between invested-only return and total-capital return is the cash drag.
Multi-account lens
How this term reads differently across brokers and accounts.
When cash is spread across multiple accounts the total drag is invisible from any single broker view. Consolidation is the only way to measure it.
Concrete example
What this looks like with real numbers.
Scenario
A £320,000 portfolio holds £48,000 idle across three broker accounts (15% of total). Invested positions returned 9.2%. The full portfolio returned 7.8% — 140 basis points lost to uninvested cash that was invisible across separate broker views.
What it reveals
Cash drag compounds quietly. Across fragmented brokers, idle balances in each account look small individually. Together they represent a meaningful performance cost.
Related terms
Terms that connect to cash drag.
Idle Cash
Cash sitting in a brokerage or wallet account that is not invested and not earning meaningful return.
Cash Position
The total amount of uninvested cash held across all accounts in the portfolio.
Portfolio Performance
The overall return of the portfolio over a defined period accounting for all holdings cash and distributions.
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