Cash has rarely been this hot on Wall Street. Financial advisers warn holding too much can burn a hole in your portfolio.

With markets rocky and cash earning 5% or more, investors have boosted their holdings of money-market funds to a near-record $5.6 trillion, according to the Investment Company Institute. Both individuals and institutional investors are piling in—asset managers now have roughly one-fifth of their portfolios in money-market funds, State Street data show.