What to do with cash sitting in savings that I might need in the mid-term.
Question
Hi Stephen,
Do you have any suggestions on what we can do with our cash, besides just putting it in a savings account?
This is not retirement money, but it’s also not money needed in the next 3 years. Maybe I’d say we’d like to use it within the next 10 years, though.
Any guidance would be appreciated.
Answer
What to Do with Cash Sitting in Savings?
If you’ve got cash sitting in savings and don’t need it right away—but also don’t want to lock it up for retirement—you’ve got options to make that money work harder for you. Based on your timeline, there are ways to grow your funds while keeping them accessible enough for when you need them.
A Balanced Approach to Mid-Term Savings
One way to manage your cash is by splitting it into two “buckets”—one for growth and one for stability. Here’s how that could look:
- The Growth Bucket: S&P 500 Index Funds
- This is where you put half of your money into the stock market, in a broad index, something like the S&P 500.This gives your money the opportunity for growth. (The S&P 500 has historically delivered around 10% annual returns, though nothing is guaranteed.)
- That said, stocks can be a rollercoaster. If you’re okay with riding out some ups and downs, this bucket could pay off nicely by the time you’re ready to use the money.
- The Stability Bucket: High-Yield Money Market Accounts
- The other half of your funds can go into a high-yield money market account, which offers around 4% interest these days. While the returns aren’t as high as the stock market, the trade-off is stability—you know your money is safe, growing slowly but steadily, and easy to access if needed.
Feeling Flexible? Go All-In on Growth
If you’re flexible, and can afford to change the date that you will use this money, you might want to go all-in with the S&P 500. Here’s the idea:
- If the market performs well, you’ll likely come out ahead over the next 10 years.
- If the market tanks, you can leave the money invested a bit longer. Historically, the stock market has recovered from downturns, and time is on your side with this approach.
It’s a bit riskier than splitting your funds, but it’s also a chance to see more significant growth if you’re willing to wait and see how it plays out.
A Few Things to Keep in Mind
- Risk Tolerance: How comfortable are you with seeing your investments fluctuate? A split approach balances risk, while going all-in on stocks amplifies it.
- Accessibility: If there’s a chance you’ll need some of the money earlier than planned, keeping part of it in a stable, liquid account is always smart.
- Reevaluate Periodically: Life happens, and your plans may change. Check in on your investments regularly to make sure they still align with your goals.
I hope this makes sense!
