• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

Where to Keep Money

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

With interest rates this low you might find it difficult to decide where to keep money. But if you approach the question methodically, it’s far easier to make a good decision.

The Purpose is the Key

Some money is meant to be spent or held for an emergency fund. Other money is meant to create income. And other amounts are to be invested. The first question you have to answer in order to know what to do with your money is what the purpose of this particular pot of dough is. Do you need the cash to pay off bills next week? Is for an insurance payment next month? Are you saving up for a down payment on a house in a few years? Do you need to create income from that money? If so, do you need that income now or somewhere down the line?

In short, you need to decide what you need to do with that money and when. Once you answer these questions, the placement decision becomes very easy.

Short Term

If you need the money within the next 6 to 12 months, stick it in the most convenient bank you can find. Consider how much you are investing and how much trouble its worth. Let’s assume you have $5000 that won’t need for 6 to 12 months. Let’s also assume that you could search high and low and you actually find one bank that is paying a full percent more interest than the competitors. 1% of $5000 is $50. So if you can open that account without too much hassle that would be good. But if the trouble of opening the account is greater than the extra $50 you’ll earn over there, why bother?

If you are looking for the highest rates for short-term FDIC insurance deposits, check out EverBank. Rates change of course but they typically offer extremely competitive rates. Worth considering.

Of course, the more money and the greater the length of time, the more that extra 1% means. Using another example, if you had $5,000,000 rather than $5,000, that extra 1% comes up to a cool $50k. Now we’re talking turkey.

The bottom line is that you should tally up how much money we’re talking about and calculate how much it makes sense to pursue that higher rate.

Intermediate Term

What if you need to save up for something over the next 5 years? At this point does it make sense to invest? Everyone has to answer this question for themselves of course. But when people ask me for an answer I typically recommend a balanced fund approach. This depends on the size of the investment naturally, but I like having a number of funds that together make up a portfolio that has both stocks and bonds. This is an effort to blend a decent return with some measure of stability. Of course this is not a guaranteed investment. Even though the risk may not be too great with this investment style, the risk is still there. If you can tolerate that risk, I think this is the best approach for many people.

Long Term

When you are talking about money that you won’t need for 5 or more years, I suggest a portfolio that emphasizes growth. Of course there is more volatility with this strategy but so what? Your long term goals need to be matched with long term investments if you want the best potential return. Look at the chart below. It shows that there is a great deal of volatility with a stock investment in any one year. Over the last 60 years, you might have earned as much as 51% in any one year – or lost as much as 37% in one year. That’s a great deal of risk. But if you average out those returns over a five year period, you can see that historical returns of an all-equity portfolio are more acceptable. Of course the past is no guarantee of future results. But over the last 60 years, there was never a 20 year period where the SP 500 lost money for investors.

what to do

There are a variety of ways to select the right mutual funds and/or investment style. And it’s very important to stick to your investment strategy once you’ve decided on an approach. But given the trade-offs a strategy that includes a focus on equity growth makes most sense for people who want to achieve their financial goals over a longer period.

The bottom line is that there are tradeoffs to every financial decision you make. If you need short-term access and liquidity, put your money in the bank. As your time horizon expands, consider putting a greater percentage of your assets into growth equity funds. This choice does expose you to short-term volatility but it also provides the greatest potential return historically.

Tweet
Pin
Share2

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a CERTIFIED FINANCIAL PLANNER™ Professional with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2022 All Rights Reserved