Current Events > Life Pro Tip: Do NOT just sit on money in a savings account your whole life

(+) Yeah! (+)

Well yeah, keep SOME money there. Emergency money, enough for a few months of being unemployed or whatever.

But whatever else you can - PLEASE consider investing it into ANYTHING.

I would recommend a S&P 500 index fund like VOO, Vanguard's VFAIX, FXAIX from Fidelity, etc.

We are in a world of market consolidation. That means money is going towards the biggest companies and most of the growth is there.

Is growth guaranteed every year? No. But nothing in life is guaranteed and over the past few years these indexes have been performing WAYY WAYY better than the 0.4% interest rate or what have you a traditional savings account may earn.

2024 23.36% 24.98%
2023 24.25% 26.25%
2022 -19.49% -18.15%
2021 26.91% 28.66%

The point is that it exponentiates and is great for long-term holding and putting in a bit here and there. Best strategy I've found is to do an automatic weekly deposit of whatever you can afford. Set it and forget it.

THIS is how you save for retirement. THIS is how normal people can become quiet millionaires - without winning the lottery or inheritance or getting extremely lucky. Just quiet, consistent, buying and investing. $50 a week. $100 a week. Your money works for you, it grows every year. That growth grows. And 40 years from now it will have done SO much more for you than sitting on cash or a savings account.

You're free to invest in other things too obviously including individual stocks, but I like the consistency/growth potential balance the S&P 500 total indexes give. Whole market is more consistent but less average growth. Individual stocks can have WAY more growth but can also fall flat.

Instead - we invest in ALL the winners at once - the people selling NVIDIA are buying APPLE - it all stays within the S&P 500 (typically) so we don't really care either way. And when the BIG profits happen we hook ourselves and ride it up with them.

Just my 2 cents here. Time in the market > Timing the market.

What about a ROTH or Bonds?

I have my 401k, buy I'm somewhat skeptical of how is the market supposed to keep growing under low birth rates when theres going to be less people to buy AND produce value.

tag I really need to do this I have way too much in savings I keep putting it off

wanderingshade posted...

What about a ROTH or Bonds?

ROTH IRAs are awesome and you should max them out BEFORE any of what I'm discussing. BUT they have a limit you're allowed to contribute - it was $7000 for the year of 2024.

They're great because they're tax advantaged - Withdrawals from a Roth IRA are tax-free if you are over age 59 and have held the account for at least five years; withdrawals taken prior to age 59 or five years may be subject to ordinary income tax or a 10% federal penalty tax, or both.

Bonds are a consistent, slow growth, not likely to go up or down very much. Probably a better investment if you're at or near retirement age already. If you're younger I think you can afford more risk.

CARRRNE_ASADA posted...

I have my 401k, buy I'm somewhat skeptical of how is the market supposed to keep growing under low birth rates when theres going to be less people to buy AND produce value.

Well put it this way - if the Market ever stops growing, consistently (it dips here and there but never in history has it stayed down for years) then we all have MUCH bigger problems. Like - "money has no value only bullets and food does" level of problem.

So I don't stress about that "possibility" and instead take advantage of the typical patterns.

I have 2 brokerage accounts, 401k, Roth IRA, and cash. Still owe on my mortgage. I could pay it off now, but its only at 2.5%. I can beat that in the market.

Im 5-10 years out on a semi-early retirement. Fingers crossed.

Edit: Oh, and a HSA. I dont contribute to it, but the company does annually.

I know absolutely nothing about investing and I'm already anxious about most things money related (Why I don't have a credit card either)... I fear jumping into something I'm clueless about...

Also - 401k I believe also has a contribution limit per year also. Your employer can also match you on contributions.

Here is the order I recommend investing your money:

READ MORE HERE: https://www.bogleheads.org/wiki/Prioritizing_investments

1) Create a savings account and put enough money to live off of for 3 months (or 6 months or whatever you feel "safe" with) Very important to have but these things BARELY EVER GROW AT ALL. I GET LIKE $4 per YEAR.

2) Employer match your 401k. Free money.

3) High Interest Debts (Credit Cards). Those fuckers will charge you 20% interest etc.

4) Health Savings Account. These are similar to Roth IRA - tax advantaged but for medical expenses only. Some employers will do all this for you.

5) 401k and Roth IRA - these have contribution limits per year but are tax advantaged in different ways.

6) Medium interest debts - car loans, personal loans, student debt. GET OUT FROM UNDER IT.

7) Taxable investments - This is where you can open up a brokerage account and start buying individual stocks or index funds/bonds or what have you. INFINITELY BETTER THAN SAVINGS ACCOUNT ONLY.

8) Low interest debt - this is like your mortgage payment. Feels good as hell when you finish it off though! So not terrible to pay off some here, but technically the opportunity cost is such that its usually better to invest the money elsewhere (these are usually 2-3% rates whereas the market averages 4%+)

cool I'll do all this as soon as I get money

HBKick18 posted...

cool I'll do all this as soon as I get money

The best investment tip of them all is "Increase your income".

These tips are once you do have SOME money - what's the best way to use it to work for you.

Spurner posted...

I have 2 brokerage accounts, 401k, Roth IRA, and cash. Still owe on my mortgage. I could pay it off now, but its only at 2.5%. I can beat that in the market.

Im 5-10 years out on a semi-early retirement. Fingers crossed.

You're on top of it, good stuff.

random_man9119 posted...

I know absolutely nothing about investing and I'm already anxious about most things money related (Why I don't have a credit card either)... I fear jumping into something I'm clueless about...

Credit cards are great for different reasons.

One is convenience - the other is if you have a rewards card you can get 1% (or more) back. So, if you spent every dollar you earned THROUGH the credit card it's like giving yourself a 1% raise, basically. They also help your credit score, which matters when you want to get a loan (on a car or a house or a business or whatever).

The only caveat is that IF you miss your payment, they will charge you like a mother fucker :)

So GET a credit card and USE the credit card - for groceries and gas and restaurants or whatever. BUT! Pay it off in FULL every month. Free 1% raise. Free amazing credit score. Sweet.

Most of my money is either in my savings account for generally spending, and emergencys, 401k, HSA and my house. I could probably afford a Roth also but I wanna do other things in life like travel and buy good food and entertainment semi regularly.

At this rate if my house is fully paid off before retirement then I MAY be able to live comfortably. Im not expecting Social Security to be around by the time I retire so Ive taken that into account also.

Good advice but there are plenty of savings accounts that pay out far more than what you are talking about.

Whats your take on hi-yield savings accounts? I tend to park my short-term savings/emergency funds there, I find they strike a nice balance between liquidity and return; usually need to wait a few business days to withdraw, but they have 4-6% interest rates, so its doing much more than a typical bank savings account.

__aCEr__ posted...

Good advice but there are plenty of savings accounts that pay out far more than what you are talking about.

That is true. Even high savings rates will almost always underperform broad equity investing in the long-term so the point is still mostly the same.

Also, I feel the need to point out just because a lot of people in recent months don't get this - but your bank's savings rates follow the broader interest rate environment. We've been in a high interest environment the last couple years. So I keep seeing everyone on the internet going bananas like "bros! i just learned about this thing called an 'HYSA' and basically you get guaranteed 5% interest WTF why didnt anyone tell me about this????". Like yeah, the rates are pretty good now. Probably will be lower later. But sure take advantage while you can. Similarly I remember a few years ago when inflation was high and so Series-I Bonds were paying well and for a brief moment everyone was going bananas for those like they discovered a new trick again.

Everything after "I would recommend.." is like a different language to me, I have no idea how to do any of that, like do I go to my bank? Where do you do it?

Yes I am ignorant I know, I just don't know how to go about doing that stuff.

HeroFlyChao posted...

Whats your take on hi-yield savings accounts? I tend to park my short-term savings/emergency funds there, I find they strike a nice balance between liquidity and return; usually need to wait a few business days to withdraw, but they have 4-6% interest rates, so its doing much more than a typical bank savings account.

I don't use one myself, but they could be a good option for point 1 above. But I think a lot of things beneath that all return more than 4% usually - so I wouldn't park a huge amount of money there necessarily.

SilvosForever posted...

Credit cards are great for different reasons.

One is convenience - the other is if you have a rewards card you can get 1% (or more) back. So, if you spent every dollar you earned THROUGH the credit card it's like giving yourself a 1% raise, basically. They also help your credit score, which matters when you want to get a loan (on a car or a house or a business or whatever).

The only caveat is that IF you miss your payment, they will charge you like a mother fucker :)

So GET a credit card and USE the credit card - for groceries and gas and restaurants or whatever. BUT! Pay it off in FULL every month. Free 1% raise. Free amazing credit score. Sweet.

An extra 1% for a risk of fucking yourself over if you miss a step sounds so risky and not worth it to me...

__aCEr__ posted...

Good advice but there are plenty of savings accounts that pay out far more than what you are talking about.

High interest rates are temporary. They're only high now, but they're gonna go down again in the future and only getting 2-3% isnt gonna be enough. You cant just rely on that. Steady 10% growth in the market will always be better. Never put all your eggs in 1 basket

I put 15% of my earnings into 401k/Roth with some company match, and about 1/3rd of each check after taxes, benefits etc are taken out goes into a high yield savings account which I can transfer money out of whenever I need to.

gator71 posted...

Everything after "I would recommend.." is like a different language to me, I have no idea how to do any of that, like do I go to my bank? Where do you do it?

Yes I am ignorant I know, I just don't know how to go about doing that stuff.

Savings account is at your bank.

401k and HSA are through your employer (full-time jobs). Different types of accounts basically.

Credit card is your credit card bill.

Roth IRA is another type of account - but you can set this up yourself through your bank (or another bank). You can set this up through different places like Vanguard.

Brokerage account is another type of account you can use to buy stocks and other stuff. You can set these up through multiple different providers, like Fidelity.

Will_VIIII posted...

I put 15% of my earnings into 401k/Roth with some company match, and about 1/3rd of each check after taxes, benefits etc are taken out goes into a high yield savings account which I can transfer money out of whenever I need to.

Me personally, after that high yield got up to like $20k I would leave it alone and put that same input money into an S&P Index fund.

This is a great topic btw, thanks TC.

My biggest challenge has been building enough overhead savings to get to stage 7, because I needed to rebuild stage 1 thanks to an unemployment gap and some medical/auto emergencies. Last year I even had to pause my 401k/Roth contributions for a bit to cushion things and get back on track. And having a child on top of all that has definitely stretched our budget thin. And saving for a house.

But 1000% agree that the best way to build quiet wealth is setting up an auto-transfer to your account of choice. And even in small amounts, smaller than you think, over time it adds up to a LOT.

Yeah, excellent topic! Thanks for all this, TC!

Regardless of who wins elections dont stop putting money in your 401k. Everyone bitches and moans about the economy no matter if its a democrat or republican but I made a lot of money under Obama, Trump and Biden. I expect to make a lot under Trump again. Consistent investing is key.

Instructions unclear, started churning credit card and bank sign up bonuses