The Skinny on Stashing Your Rainy Day Cash
Photo: Marc Royce
Q: In the past four years, I've paid off all my debts and saved enough for a six-month emergency fund. Should I invest some of it in the stock market? If so, what percentage? I've never had this much cash sitting in the bank before, and I don't know if it's doing what it should.
A: Paying off debt and building a six-month backup fund is a major accomplishment—good for you! (And keep it up.)
While it's fantastic that you want to make the most of this money, you should definitely not invest it in the stock market. This is your emergency savings—so you need to know it's going to be there for you the next time one inevitably arises. You just can't count on the market in the short term: Say you had $20,000 in emergency savings on January 1, 2008, and you put that money into a stock market index fund. Then, on December 31, 2008, you were laid off. You might have told yourself you'd be okay with your severance and your savings. But when you checked your account, you'd have found that its value had fallen to $12,600, since the S&P 500 stock index fund was down 37 percent.
The key with emergency savings is safety first. And second. And third.
More: The best places to keep your assets liquid
Suze Orman's most recent book is her Action Plan: New Rules for New Times (Spiegel & Grau). Click here to ask Suze a question!
A: Paying off debt and building a six-month backup fund is a major accomplishment—good for you! (And keep it up.)
While it's fantastic that you want to make the most of this money, you should definitely not invest it in the stock market. This is your emergency savings—so you need to know it's going to be there for you the next time one inevitably arises. You just can't count on the market in the short term: Say you had $20,000 in emergency savings on January 1, 2008, and you put that money into a stock market index fund. Then, on December 31, 2008, you were laid off. You might have told yourself you'd be okay with your severance and your savings. But when you checked your account, you'd have found that its value had fallen to $12,600, since the S&P 500 stock index fund was down 37 percent.
The key with emergency savings is safety first. And second. And third.
More: The best places to keep your assets liquid
Suze Orman's most recent book is her Action Plan: New Rules for New Times (Spiegel & Grau). Click here to ask Suze a question!
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.
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