I have been reading through many posts and investing articles though a lot seem to be promoting something and still feel fairly new to investing outside of my 401K and Roth IRA. So, I thought I’d ask for some advice here.
I had planned to pay off our house early, but with a 2.875% mortgage and interest rates rising, I decided to put extra funds in a high-yield savings account (HYSA). For the past couple of years, it was yielding over 5%, but that has recently dropped below 5% after the latest Fed cut. Including our emergency fund, I now have about $150K in the HYSA. I also have a son graduating in May and two daughters following within the next three years, so I’ll likely need to use some of this money for college expenses over the next decade.
My question is, now that HYSA rates are dropping, is there a better place to park this money? I expect rates to continue declining based on the Fed’s current stance. I’ve considered dividend ETFs, money market funds (MMFs), REIT ETFs, etc., but I’m a bit nervous about putting needed cash into a market ETF given how strong the markets have been the past couple of years. I feel like a correction could be coming, but I’m still a novice in this space.
Any suggestions on where to invest this money? Is it possible to find something with 5-7% returns that comes with relatively low risk, or am I being overly optimistic?
Thank you for your reply. You’re right, rates aren’t dropping to 0% anytime soon, though having $20k sitting in one when they were was tough. I haven’t seriously explored investment options outside of my 401k due to a lack of disposable income. Now that I have more savings, it feels like there should be something between a high-yield savings account or bonds and the volatility of market or sector funds. But from my research, and based on the feedback I’m getting here, there doesn’t seem to be much.
On the bright side, at least I am not overlooking something. On the downside, it’s disappointing that there isn’t a good middle ground for lower-risk investments like this.
You have missed the window for those kinds of returns with ultra-low risk. If you are looking for an alternative to a high-yield savings account, consider options like SGOV, SNSXX, or SWVXX (or your brokerage’s equivalent). I personally keep my cash equivalents in a mix of SGOV and SNSXX. You could also look into CDs for other low-risk options.
Well said. I neglected to bring up the taxes. For this reason, instead of using SWVXX as I do in tax-advantaged accounts, I use SNSXX in my taxable accounts. For my part, this is the reason I mailed CDs this way.
Thirty, no children, and three-quarters of my money are in TBills, namely VUSXX. The remaining 1/4 is in a Cap One HYSA, which is more for “emergency” savings. When I have enough, I’ll invest more in tbills or a house. However, this is not money for investments, specifically savings. Investment is a very different subject.
I am 47 with five kids, and most of my investments are tied to my 401k. I’ve always kept my emergency fund in a high-yield savings account. With this extra $100k, I’d invest in something like VTI if it weren’t for the potential need for my kids’ college expenses. As for real estate, I already own a home on three acres, and I am not ready to become a landlord just yet—maybe once the kids move out.
I also wanted to suggest VUSXX. We keep our emergency fund there since my wife likes having the money very liquid and “safe.” One advantage of VUSXX is that, depending on your state, you might not have to pay state income tax on the interest earned. This is a nice benefit that makes us less tempted to chase higher yields from high-yield savings accounts. Currently, the VUSXX distribution yield is at 5.16%.