How Much of My Money Should Stay in Safe Investments?
You need to keep enough money in liquid, safe investments to cover, at a minimum, three to six months worth of living expenses. This means if you need $2,000 per month to live comfortably, you need to have $6,000 - $12,000 in safe, liquid investments like bank savings accounts or money market funds.
- The less secure your employment, the more money you want to keep in safe investments.
- The closer you are to retirement, the more money you want to keep in safe investments.
For those retiring in the next few years, you will want to have three to seven years worth of withdrawals in safe investments, like money market funds, certificates of deposits, agency bonds, treasury securities, and fixed annuities.
This is the money you will use for living expenses your first few years of retirement. This strategy allows you to leave the remainder of your investments invested for growth, potentially providing some protection against inflation. When your growth investments have a good year, you take profits and use the proceeds to replenish the safe investments that you have been spending.
For additional information on how much of your money should stay in safe investments read:
- How Much of My Money Should Be in Stocks vs. Bonds?
- Strategies for Creating Retirement Income From a Portfolio
- What is a Bond Ladder?
When is the Right Time to Switch To Safe Investments?
The right time to switch to safe investments is on a scheduled plan so that by the time you reach retirement, you have enough money in safe investments to meet your income requirements for many, many years.
Each time your risky investments, like real estate and equities, have a year with above average returns, you should take profits and increase the amount of money you have allocated to safe investments.
Unfortunately, most investors do not do this. Instead they buy risky investments after they have gone up in value, and then sell them in a panic after they have gone down in value.
You will have the most success by building a solid, long term plan and sticking with it. This has been proven to deliver better results than trying to time the market.
Keep in mind, although equities and real estate are not traditionally considered safe investments, the safest time to buy these types of assets is when to prices are at all time lows.
For additional information on when to switch to safe investments read:
- Why Do Advisors Tell You To Sit Tight And Not Sell When The Market Is Going Down?
- Why Average Investors Earn Below Average Investment Returns