Ask The Money Coach

First, let me congratulate you for having the diligence and savings ethic at your relatively young age to amass more than $20,000. That’s great! You’ve clearly taken advantage (in a good way) of the financial benefits afforded by living with your parents. That’s precisely the right thing to do: sock away as much as possible while your living expenses are very low. You also mentioned your 401(k) at work. By all means, do max out your contribution there to the full extent allowed, and collect your employer’s 6% matching contribution in the process.

Consider No-Load Index Mutual Funds

Regarding your investment options, I would suggest that you not invest all $20,000+ of your savings, but rather just a large portion of it. Keep $5,000 or so in your checking account. Hopefully that will be enough to help you still qualify for that nice 4.0% Annual Percentage Yield. Then take the other money and invest in no-load index mutual funds. Some good fund options exist at companies including Vanguard, Fidelity and American Century, to name a few. You’ll want to do your homework, of course, and research any fund carefully before making an investment choice. Additionally, you should let the specific mutual funds you choose be tied to specific goals.

For instance, let’s say you want to buy a house of your own in three or four years. Well, you can choose moderately aggressive funds, at least for the first two years. Within a year of when you think you’ll need the money, you’ll want to become more conservative in your investment picks. However, let’s assume you want to stash away more money for retirement. Since that’s several decades away, you can afford to be far more aggressive in your investment options when you decide where to put that $15,000.

Finally, keep up the great work you’ve already put into saving and learning about managing your finances well. That’s so very impressive and admirable.

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 Lynnette Khalfani-Cox, The Money Coach is a personal finance expert, speaker, and author of numerous books on personal finance. She appears frequently as an expert commentator on television, radio and in print.