As a recent college graduate with no debt, how should I allocate my savings?

I make around $50,000 a year, have relatively low expenses, and no debt. I contribute 9.5 percent to my pension, 2 percent to my 401(k) without a company match, and 2 percent to my Roth IRA 457. At the end of each month I put my excess money, usually around $1,000, into a low-yielding money market account (MMA). I now have around $18,000 in my MMA. If I'd like some degree of liquidity and I have moderate risk aversion, how should I allocate the savings in my MMA?

Debt, Financial Planning, Pensions, Investing, Asset Allocation, IRAs
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March 2018

You're saving a lot! Great job. You're going to be ahead of the curve. 

Depending on what your average monthly expenses are, typically a good rule of thumb to have is to set aside enough cash for 3-6 months worth of living expenses. However, it's up to you what you're comfortable with. That money should be designated for expenses outside your ordinary expenses. 

Emergency funds should typically remain in cash or a cash equivalent such as a money market fund. There are high yield savings accounts offering much higher interest rates than typical banks. Ally bank is one for example. Nerdwallet has a review for the best 2018 high yield savings accounts, I suggest checking that out. 

Once you've reached the "emergency fund" threshold you're comfortable with, you may consider re-allocating that $1000 in cash flow towards mid-long term investments depending upon any goals you might have. Do you want to begin investing/saving for a home in the next 5-10 years? If so, you could consider investing the cash flow in automatic contributions every month to a taxable brokerage account. While it won't have any tax benefits like your retirement accounts, it will allow you to access the funds before retirement without penalty. 

You may also consider maxing out your Roth IRA. There isn't a better time to put away funds in a Roth than when you're young and in a lower tax bracket than you will likely ever be throughout your career. Especially with the recent tax cuts!

All in all, you're in a great position to begin building wealth and have done an excellent job saving thus far. Prioritize your goals and determine what's important to you to save/invest for and that will help you determine where to allocate the $1000 in cash flow that will be free once your emergency fund is sufficiently funded. 

All the best, 

March 2018
March 2018
March 2018