How large should my emergency fund be before investing?

A common guideline is to save 3 to 12 months of living expenses in a high-yield savings account. Your specific number depends on your job security and risk of unemployment.

Which accounts should i fund first?

Contribute enough to your 401k to get the full employer match first. Next, max out a Roth IRA and HSA, then put any remaining investment money into a taxable brokerage account.

Should i invest money i will need in a few years?

No, money needed within five years should stay in cash-equivalent accounts. This prevents you from being forced to sell investments during a market dip.

What is the best way to invest in the market?

Many users recommend setting up automatic investments into index funds or ETFs, a strategy known as dollar-cost averaging, and maintaining a long-term perspective.

How Much of Your Savings to Invest

You should invest the rest of your savings after establishing an emergency fund of 3 to 12 months of living expenses in a high-yield account. The exact amount to invest depends on your job security, household income, and personal risk factors.

Prioritize investing by first capturing your full employer 401k match. Then, max out other tax-advantaged accounts like a Roth IRA and HSA before putting leftover funds into a taxable brokerage account.

Keep short-term money needed within five years in cash equivalents, not the market. For long-term investments, use dollar-cost averaging into index funds and avoid panic selling during downturns.

How Much of Your Savings to Invest — infographic

Many Users suggest that after securing an emergency fund of 3-12 months' worth of expenses, you should invest the rest of your savings, prioritizing tax-advantaged accounts. The specific amount depends on individual circumstances and financial goals.

Establish an Emergency Fund First

Prioritize liquidity for emergencies. Many Users advise setting aside 3 to 12 months of living expenses in a High-Yield Savings Account (HYSA) before investing in the market. "Basic advice is to keep 6mo average expenses plus anything you need for any planned large purchases in high yield savings and invest the rest."

Consider personal risk factors. The size of your emergency fund can depend on your job security and household income. "It depends greatly on your human capital. If you're a tenured professor, you have very little risk of unemployment. If you're a gig worker or employed in an at-will jurisdiction, your risk is high."

Separate emergency planning from investing. Keeping an emergency fund in easily accessible, low-risk accounts prevents you from being forced to sell investments during market downturns. "The key for me was separating emergency planning from investing so I’m never forced to sell."

Investment Prioritization

Maximize employer 401k match. If your employer offers a 401k match, contribute at least enough to receive the full match, as it's essentially free money. "1) 401k to get company match, look at your plan document, usually contribute X% to get Y% match."

Utilize tax-advantaged accounts. After securing a match, prioritize contributing to accounts like Roth IRAs and HSAs due to their tax benefits. "Definitely max out ROTH, IRA and any other tax protected savings accounts during your career."

Invest remaining funds in brokerage accounts. Once tax-advantaged accounts are maximized, any additional money can be invested in a taxable brokerage account, often in diversified index funds or ETFs. "Anything left over after maxing those 3 accounts goes to a taxable brokerage in whatever your heart desires."

Investment Strategies

Invest regularly and consistently. Many Users advocate for Dollar-Cost Averaging (DCA) by setting up automatic investments into index funds or ETFs. "Just DCA into ETF's and don't look at it. If it dips - view it as a deal, not losing money."

Consider your investment horizon. Money needed in the short term (under 5 years) should remain in conservative, low-risk assets, while long-term funds can be more aggressively invested in equities. "Money you need in the short term (e.g. within 5 years): 'Save' in cash-equivalent instruments."

Maintain a long-term perspective. For young investors, staying invested in broad market index funds and avoiding panic selling during market fluctuations is a common recommendation. "You are young... The only thing - don't panic sell. Trust the process."

Do you have any specific short-term financial goals that might impact your investment strategy?

Best for: People with stable savings who want to grow long-term wealth after securing a basic emergency fund.