I have a good amount of money in an emergency fund, literally have little to no expense every month. I currently invest in real estate, however, for the time being , I have about an extra $55k I want to put to work while I continue searching for my next deal, where in the stock market should I put it ? Rather than having it sit in my checking account.
Yeah… this issue always pains me, but the more experience I get and the more I research, the answer always comes back “just a savings account”. If you’re likely to use that money within a year or two, any sort of investment is just going to offer a lot of volatility with low expected returns. Here’s a post that explains the math behind it:
In your case, with $55K… if you get the average annual return then buy a house in 12 months, your $55K will turn to about $60K. But if the bad thing happens and we have a 50% crash (like we have several times in history) your $55K turns into $27K. Scenario 1 doesn’t really improve your buying power much, but scenario 2 crushes it.
You could go with a less volatile investment, like bonds or something. But that’s just shades of grey of the same problem. i.e. A bond fund returning 4% historically with a 20% worst drop would put you in the range of $57K if you get the gain and $44K if it drops.
So, it’s just not worth putting money on the line during short periods like that. But I feel your pain because it feels like the money is just sitting there not being put to work. But if you’re a real estate investor, you just have to figure out how long those “down periods” are and work them into your rate of return for your investing over all.
And of course, you can/should at least seek out a decent interest rate on a savings account. You can get your 1% or whatever guaranteed. That’s at least a free $550 for your effort
Thank you for your insight on that! I agree, the savings account will be the route I take. Thank you Jeremy!