Suze Orman Says This Is the Best Place for Money You Need Within 5 Years
KEY POINTS
- Money for really far-off goals should generally be invested.
- Money for shorter-term goals should be kept someplace safer.
- Look to a savings account to keep money in for your short-term goals.
It pays to take her advice.
There are different accounts you can spread your money out in. You may, for example, want to keep money you need for near-term bills in your checking account. And if you have money you're earmarking for a far-off goal, like retirement, then you may want to look to a brokerage account. That way, you can invest your money in stocks and other assets that have the potential to gain a lot of value over time.
But if you ask Suze Orman, money you're setting aside for a goal that's five years away or sooner shouldn't be invested. Instead, you should keep it in a place where it will be nice and secure -- a savings account.
Why you can't take risks with money for near-term goals
The stock market tends to reward investors who stick with it for decades. But in the near term, the stock market can be very volatile. And it can take years for the market to recover from a downturn, especially a major one. So if you're socking money away for a near-term goal, your best bet is to keep it tucked away in a savings account. That way, your principal deposit is protected.
Of course, the downside of keeping your money in a savings account is losing out on the higher return you might get in a brokerage account. But it's worth giving up that higher return for the peace of mind a savings account can give you.
Let's imagine you're saving up to buy a home, and you think it will take five years to come up with enough for a down payment. If you put that money into a brokerage account and the market tanks, you might set yourself back a few years while you wait for a recovery. But if you keep your down payment funds in a savings account and don't take withdrawals, you're guaranteed to have all of that money available to you once you're ready to make an offer on a home.
Your emergency fund should go in savings, too
You may have money set aside not for a specific goal, but rather, to bail you out if a financial emergency strikes. That, too, should sit in a savings account, says Orman.
Imagine you need to tap your emergency stash for a sudden car repair. Keeping that money in a brokerage account could mean having to take a loss if your portfolio value drops right when you need that cash. And so a savings account is really your safest bet.
All told, any money you expect to need in the near term -- or think you might need in a pinch -- should not be invested. Giving up a higher return might be frustrating. But that's better than running the risk of losing money, or not having the money you need at your disposal. And besides, you can chase a higher return when it comes to money you don't expect to need for decades. You just need to play it safe with short-term cash.
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