- If you need money in the next year, it should be in cash.
- Any money that you don’t need in the next year should be invested.
- You should invest with a 5-10 year timeline in mind.
When choosing how much money to invest in the stock market, it’s important to consider how long it will be before you need that cash.
Here are two rules of thumb to follow when deciding the smartest, safest and most profitable place for your savings.
“If you need your money in the next year, it should be in cash.”
The stock market can fluctuate greatly. It’s no fun to need cash for, say, a down payment on your first home and find that your stocks are down 50%.
If you’re house shopping, wedding planning or car buying within the next year, keep those necessary funds in a savings or money market account. (Double check that it’s FDIC-insured too.)
“Any money you don’t need within the next year is a candidate for the stock market.”
This is where the fun begins. And it’s why we encourage you to get saving now!
Any cash you don’t need in the coming year can go to work for you every day in the stock market… taking bigger risks and affording you larger profits.
When you invest with funds that you have no immediate need for, you protect yourself from the short term fluctuations of the stock market. Over the course of a year or two, you could see your investment suffer a loss, but on a longer timeline, the stock market and great companies get bigger and more profitable.
That’s why you should invest with a 5-10 year timeline in mind. This will prevent you from pulling your funds out in a downturn and incurring a loss.
Thank you for reading and hope you learned something new.
In case you want to learn more things about investment check more articles from our Investment Academy.