The public answers: “I have $ saved up, what do I do?”
This question pops up regularly on our facebook forum. You have some money saved up 👏 🎉 and now you’re wondering what to do with it. Here’s the rundown of options, crowd-sourced from members:
Aditya Malik sums it up:
“The recommendation is 3-6 months of expenses should be saved in a High Yield Saving Account since it's liquid and you can access it whenever.
The reason people tell you to invest anything beyond the 10k (if you're not saving for a big purchase in the next 3-5 years like a wedding, car, or house downpayment) is because everything else you save after the $10k, you can only earn minimal interest on. Before COVID banks had interest rates of ~2.5%, now they're under 1%. The stock market averages 8-12% a year. As long as you're just buying and holding, your money is worth more invested than saved.
Stock market can be daunting but if you do your homework it's not difficult. For 90% of people the simplest method is buying index funds or target date funds. Most company 401k use target date funds, which just take the year you're expected to retire and automatically adjust the investments according. They're heavy in stocks when you're young since they give bigger returns, and slowly transition to bonds as you get older since they're less risky.
Before investing additional money beyond your company's 401k match, make sure to pay down any high-interest debt greater than 4-5% since that will negate any gains you make in the market!”
There are also investment vehicles outside of stocks. Our investment content is here, but members have a few suggestions. David Tran brings up real estate:
“In my opinion, if you can buy a home right now, I think it would be one of the best investments you can make. The economy is down, interest rates are at historic lows, and if you're still employed, take advantage of this opportunity!
If you're renting, your opportunity cost is going from paying your landlord vs. paying into the principal of your own mortgage (it's nice that interest rates are low, so you'll be paying less in overall interest - I saved my girlfriend $500+ per month on her mortgage).
Your money will be tied to your real estate, and in California, it's generally had steady growth year after year. My girlfriend gained 30k in equity after her first year of purchase.
When/if you have a good amount of equity in your home, you can do a cash-out refinance to purchase another property for investment... This is leveraging, but this could be another rabbit hole.
Whatever you decide to do, go with your own risk tolerance. However, the more educated you become, the higher your risk tolerance - it becomes a "controlled risk."“
For the less risk-tolerant, you have options too. Mark David suggests treasure bonds:
“If you're not a risk taker, but still want some form of returns, do a treasury bond. You'll hopefully get a return that matches inflation. That's the best you'll really be able to do without having some form of risk tolerance.
Unfortunately, the financial markets are based on risk - return: the higher the risk, the higher the reward. To be honest, going through on your proposed route may not even beat the inflation rate.”
Nguyen Vinh Danny also elaborates on bonds:
“You can look into Series I US savings bonds as well. These bond rates are adjusted semi-annually to counter inflation, and depending on the time you purchase them there will be an additional fixed interest rate for up to 30 years.”
Need more? We’ll be adding more snippets. In the meantime, Yang Qian puts it this way:
“The interest rate on savings account is all related to the Fed's interest rate. To make long story short, the Fed increased the interest rate in the past 4 years by a lot so that's why your interest rate is higher. Now the Fed lowers the interest rate to push people spend more money to boost economy so the overall interest rate is lower. Some banks offer better rates than others. But no one's rate would beat inflation. You need emergency funds so you can put those there. Savings account is for emergency. You won't be able to make a great fortune but is absolutely necessary to have enough emergency money in the savings account. Then anything extra you can start investing. When the stock market is fluctuating significantly, such as right now, if you're not a professional investor, not a risk taker, it's probably better off just holding cash. You can have a financial advisor that can help manage your invesmets /401k better to get better returns. Another way to help is to limit your spending, not saying living a cheap life. Focusing on priorities, things you really want. For example, I bought a new car and new house so I'll make payments on those monthly so I know I shouldn't spend lots of money on things I don't need to make sure I can always have enough to pay for my car and house. I'm also enjoying those. My car is completely paid off now.”
