How to Invest Extra Cash
“How do I invest the extra cash I have in the bank?” is a common question for people who find themselves with more discretionary cash flow. This could be the result of increasing income due to career advancement, recently paying off student loans, or becoming an empty-nester with less spending on kids. Making a decision on how to save and invest your hard earned money during normal times can be intimidating, but during times of uncertainty like now it is even more difficult. Saving and investing strategies do not have to be complicated. Here are a few simple steps to get you started.
If not done already, an essential step is to establish an emergency fund equal to approximately 3 to 6 months of living expenses. An emergency fund acts as a safety net in the short-term in case you need it for something unexpected like medical bills or car repairs. It can also ensure your lifestyle during times of transition such as moving or starting a new job.
Up to this point, you probably have been contributing at least enough to your employer plan to capture the free company match. Now is a good time to increase your contributions to your employer plan, maybe even max them out. The annual maximum amount employees may contribute to a 401k plan is $19,500 for people under age 50 and $26,000 for people age 50 and older.
Now is also a good time to consider saving in other investment accounts outside your employer plan like Traditional or Roth IRAs, brokerage accounts, and/or 529 Plans. Your personal situation, goals for using the funds, and timeline for the investments will determine the most appropriate account type(s).
Evaluate your investment strategy periodically by taking into account your risk tolerance, time horizon, and goals for using the funds in the future. A range of investment strategies from conservative to aggressive may make sense for your unique circumstances. In addition, holding a diversified portfolio consisting of low-cost and tax-efficient securities can improve your results over time.
Your hesitation to take action is reasonable considering the numerous options available. However, we can help you make confident financial decisions. Contact our team of advisors to learn how we can help you grow and protect your wealth.