We always talk about the importance of investing your money in low cost index funds. But it’s also important to know when NOT to invest.
The magic of investing comes from letting time do the work for you. When you have a 10+ year horizon the impact of buying and holding index funds can be huge. But, investing money that you plan to spend over the next few years is not a great idea. This is because the stock market can be very volatile in any given year and can return anywhere from +50% and -50%!
So, what do you do with money that you plan to spend in the next few years?? Use a High Yield Savings Account or something similar, like a money market fund or a cash management account. The good news is, High Yield Savings Accounts are now paying 4%, if not higher. This is the highest they have been in over 15 years!
Don’t spend too much time worrying about if you should use a High Yield Savings Account or a regular savings account or maybe even a CD. This is not what is going to make you rich. Instead, spend time focusing on finding ways to increase your income, save a healthy portion of what you make, and consistently invest in low cost index funds.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Vivi & Shane
