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I have $25,000 in savings, am debt-free, and I live at home; what's the best way to make my money grow?

I'm 24 years old and making roughly $30,000 per year. I put 8 percent of my income into my employer's 401(k). I plan to buy a house within the next few years, but in the meantime I don't want to leave this money in a savings account with interest rates being as low as they are. I have $25,000 in savings, am debt-free, and I live at home. What's the best way I can use my savings to increase before I use it for a down payment?

Debt, Financial Planning, Real Estate
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July 2018

Congratulations on being debt free and participating in your employer's 401(k) plan! I agree with the other answers which recommend keeping your $25,000 in an investment that is safer than the stock market. If you know that you will not need the money within a specific period of time (like one year), you could consider putting some of it (maybe half?) in a 12-month CD that has the same kind of FDIC insurance as bank accounts. If you know you have 18 months, you might consider putting some the money in an 18-month CD. With interest rates rising, I would not seek out longer term CDs than those right now. CDs tend to pay higher interest rates. Of course, you can't usually access the money during the term of the CD, so keep enough in a high-interest bank account to cover emergencies. Talk to your bank; you don't need to pay adviser fees to buy a CD.

I know you want to earn more of a return, so look at your 401(k) investment allocation as well. Keeping your home down payment in cash, along with your age, suggests you could be quite aggressive in your retirement plan holdings. If you own a lot of bond funds in that account, consider moving them to an equity index fund, like the S&P 500 if you want a higher return. Of course, this idea assumes your risk tolerance level matches an aggressive portfolio. Talk with a CFP(r) professional if possible or at least the person who comes each year to talk about your company's retirement plan. He or she could give you some guidance here!

Again, congrats, and best of luck!

Peggy

July 2018
July 2018
July 2018
July 2018