Using a brokerage account as a method of short and long term saving

Saving
#1

Hi Jeremy!

Given the opportunity to save money after investing for retirement and having emergency savings, how would you suggest one use the rest of their savings? This question is two-fold.

First, what % of savings (after emergency savings) is safe or aggressive to put into the market? Is this % age-dependent?

Second, using that %, what type of investments would you suggest for short-term savings (5-10 years) vs. long-term savings (10-20)

For example, I am 26 with a savings goal to go on a year-long biking trip in 3-5 years. I’d like to start saving for this goal by putting a percentage of my savings away over the next 3 years. How would you suggest I effectively save this money to reach my goal?

Thanks!
Kris

#2

Hey Kris!

GENERALLY, I break up investing into long term and short term. Anything long term (5+ years) throw into index funds and let it sit for a long time to weather the volatility of the market and take advantage of the long term growth.

Short term stuff simply doesn’t have enough time to grow, so it’s not worth exposing the money to that volatility. Here’s an article that shows a bit of the math:

That said, your 3-5 year goal is kinda on the bubble. I might not want cash sitting around.

So a simple idea might the the following:

  • Short term stuff (3-6 month emergency fund plus any other money you plan to spend soon): High yield savings account
  • Mid term stuff (saving for 5 year bike trip): 2020 target date index fund in a brokerage account
  • Long term stuff: 2060 target date index fund in tax advantaged accounts

If you look inside of the 2020 target date fund you’ll see it’s very conservative… mostly bonds, cash and some stocks. With the goal of preserving capital and providing some income/growth. That might be the right balance for your 3-5 year goal!

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#3

Interesting information regarding mid term savings. Thank you!

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