Welcome to Better Have My Money, my Monday night newsletter about stocks, investing and figuring out feelings about money.
I slept an extra 2.5 hours past my alarms (yes, plural) this morning and my brain has failed to catch up all day, so this week I’m throwing it out to a reader’s question aka using my lovely audience to help write this damn thing.
Reader B wrote: “Should you try and make short-term money on the market? Like, should you put money in there you’ll need in the next decade for a house deposit or whatever?”
First of all, I love that “in the next decade” is short-term for this reader. Bless.
Because a thing I often talk about is how the decisions you make around your money — how much to save, to spend, what you want to invest in, what your values around money and where you want to make it, etc — are yours and yours alone.
For me, a decade is long-term! Literally no idea even where in the world I’ll be living then. But, it’s totally reasonable that for someone else, a decade is a short-term proposition money-wise.
First of all remember I can offer no real advice as I am not a trained expert but just a fool with a newsletter and nothing better to do on Monday nights. But literally this week I researched and made some of my own decisions around how much money I want cash-in-hand — and therefore how much of my “short-term money” I’m planning to invest in the coming years.
So in 2019 I’ve focused on building up my fuck layoffs fund (also to be used as a fuck off fund if I ever find myself in a position where an incompetent boss insists I abandon my journalistic ethics) rather than adding much to my stock portfolio.
At first I wanted to save the recommended 3 months worth of living expenses in a high-yield savings account (reader, your normal bank probably offers an absolute trash savings % and you may need to open one elsewhere).
Then I thought 3 months worth of pay would be safer, then figured I should aim for the optimal 6 months of living expenses.
I’d gotten to the 3 months of pay sitting in my bank account and then last week after writing my newsletter about how I probably need some ethical ETFs, I went wait….
Like, do I just need to have my money sitting there in cash, barely earning enough interest to make up for inflation?
And honestly, there’s as many different thoughts on this as there are finance sites. The Balance recommended just 3-4 weeks of pay on hand in a savings account and then investing the rest in index funds (personally, this was just not enough available cash for me. Or maybe 3-4 weeks of my pay is just…. not that much).
Betterment recommends investing only like 30-50% of your emergency funds in stocks, while Wealthfront thinks none of it should be invested. Others recommended keeping half your emergency fund in a savings account, and putting the rest in a long-term certificate of deposit account, or in bonds, or other super safe investments.
Confusing term of the week: “Certificates of deposit” — CDs are basically when a bank offers a rate if you agree to not touch your money for a set period of time (6 months, 13 months, 24 months etc). It’ll usually be higher than a savings account, but lower — and less risky — than what you’d make if it was invested in index funds.
For me, it was this paragraph from Ellevest that helped me figure out how much money I personally want in my emergency fund, which I want to access immediately at any moment without worry that the market is down etc.
…if you freelance full-time as a single mom and own a fixer-upper, you’re probably going to want closer to six months’ (or more) of your salary saved up. (Also, you are a superhero and we bow down to your amazingness.) Or if you’ve been in a steady, salaried job for a while, share finances with someone (like a spouse), and have no dependents and no mortgage, three months is probably good for you
I’m closer to the second than the first (although I do not share finances with anyone) which made me feel that now I have three months saved up then I can leave that in a high yield savings account and just forget about it — and the future money normally allocated for my savings will now be heading straight into investments.
Yep, I even opened up an Ellevest account and everything (1. they are a women-focused business and 2. they have “impact portfolios” which invest specifically in other environmental, ethical and women-focused businesses) and have adjusted my automatic savings amounts accordingly. If you want to sign up, you can use this link and we both get $20.
So back to reader B and if you should you try and invest money you’ll need in the next decade for a house deposit or whatever? Hell yeah.
Have an emergency fund (and of course pay off any high-interest debt before you build that up) and then yeah, absolutely invest the money you want in the next few years. Probably focus on ETFs or index funds or other sensible things (or buy individual stocks which are fun and I love but also don’t blame me when they collapse and your home deposit is gone). However, if you’re not investing your money, even if just for a few years, you’re missing out. And I mean like maybe missing out on thousands and thousands of dollars missing out.
Such as $5000 invested in 2009 in stocks would have been worth $11,185 in 2018. The same amount in a high-yield savings account bringing in 1.9% for the same time period would be worth…. $5931.65.
Being nervous about the “short-term” costs you money.
Across the globe, Australia is facing horrific bushfires right now — and politicians keep insisting that now is not the time to talk about climate change (weird, feels like it’s never the appropriate time to talk about tough stuff with politicians, ahem). Many of the rural bushfires are fought entirely by volunteer fire brigades. You can donate cash to the NSW Rural Fire Brigade here.
Hoping everyone is safe,
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As always, if you've got any questions about stocks, this is a shame free zone. Just reply and ask away.