Letter Re: Savings & Investing
I first wanted to say, I love your blog and appreciate all of the useful information it provides. I was wondering if you could do a feature article on people in there early 20’s who have money to invest but just aren’t sure how to allocate it. I will give you my own situation right now. I currently have 12,000$ in a Sallie Mae high yield savings account at 1.4%. I am contributing 10% of my salary to my companies Roth 401K, which is allocated among 5 different mutual funds. I keep around 1,000$ in my checking account for bills and leisure expense. I have 4,000$ in my Bank of America savings account that is earning pretty much nothing. I have zero debt. I know I should be investing some of this money elsewhere, just needed your help on where that may be.
Great questions and ones that I think are relevant for many readers of this site – therefore, I’m doing a public response to your question.
You really don’t have excessive savings that is screaming to be allocated into some sort of “risk asset.” You essentially have $16,000 in basic savings / emergency funds. Read more about how important liquidity is on post entitled Your Personal Financial Statement.
What I would propose instead of moving money around is to instead start allocating new money into something else. Leave the savings as is for liquidity purposes, and start putting money into one or all of the following:
- 1 or more DRIP plans – I currently contribute a small chunk of money every month into my WMT DRIP and my MCD DRIP. Great way to build positions in great companies.
- Start buying a couple silver American eagle coins each month. You probably have no exposure to precious metals. Excellent way to diversify savings and hedge against inflation.
- Start putting money towards a down payment on real estate. I say this because most people always default to buying real estate. I don’t really think it’s a good investment, but since most people are likely to do it, saving up for it is a logical thing to do.
Let me know if you have any comments or follow up questions.
You’re ahead of the game!