I am saving $50,000 a year and have $175,000 in a money market savings account; what should I be doing with this money?

I have about $175,000 saved in a money market savings account and continue to save about $50,000 a year. I also maximize contributions annually to my 401(k) at a total of $18,000. Does it make sense to keep saving? I have an investment property that has about $80,000 left in the mortgage. I am considering buying another investment property or investing in other ways. I am not familiar with trading, so I wouldn't know where to start with that option. What are my investment options?

Banking, Debt, Investing, 401(k)
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2 weeks ago

Orlowski, Steven

Egg Harbor Township, NJ

Before you do anything more understand that what you "should" do is determined by "what" you are trying to accomplish.

The "what" for most people include things like retirement, getting married, raising kids, buying a home/second home, starting or maintaining a business, and setting up funds to be left behind for your heirs (or heirs to be).

These things must be defined before any advisor can tell you what you should do.  If you do not yet have defined goals then the default investment options are short-term cash equivalents like money markets and CDs.

Once you define your goal(s), then the "should" becomes more apparent. Time frame is critical, followed by your risk tolerance or risk aversion.

If you are saving for retirement, then thngs like IRAs, annuities, and cash-accumulating life insurance can be considered.  These and other products designed for retirement savings are tax-deferred. This means the earnings in the accounts are deferred until withdrawn. However, the IRS penalizes you if you withdraw the money before you reach age 59 1/2. This restriction means that money being saved for a goal like a second home purchase, something to be gained sooner rather than later, should not be invested in any tax-defrred investments unless you will turn 59 1/2 bfore the money is needed.

Similarly if you are saving for something that is to be accomplished sooner rather than later you'd have to consider the time-frame related restrictions of the investment or the account type but also the amount of risk the investment presents (you do this with all investments and goals but the shorter time frame makes it even more critical). For example, if you were targeting a second home purchase in five years you'd want to minimize exposure to risky investments by looking at investments that will perform well and safely over five-year periods. This is because investments like equity mutual funds can do very well over time but they are unpredictable and can lose money over the mid-term and short-term.  You wouldn't want to invest today for a home in five years but end up with less money than you started with for that goal.

However, some investors are willing to take extra and unnecessary risk. But that is an indiviual decision. My advice is to segment your savings by identifying your specific goals. Start with short-, mid-, and long-term goals.  Then consider the amount of savings you are willing to commit currently and progressivley to each goal, appropriate for each goal's time horizon, until the time at which you anticipate reaching the goal.

Finally, look at the investments that are likely to get you the returns you need to achieve your goals and that are appropriate for the time horizon. I always try to take the least amount of risk necessary to achieve each goal. But take as much risk as you are comfortable with. Just remember that although you could end up with more money than you need you might end up with less. 


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