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I believe in the 80% solution. Put your money to work rather than stuffing it in a mattress, but favor the 80%-of-optimal solution that's easy to set and forget
by wikwocket 13y ago
I believe in the 80% solution. Put your money to work rather than stuffing it in a mattress, but favor the 80%-of-optimal solution that's easy to set and forget, instead of the 100%-optimal solution that requires micromanagement, expertise, and luck.
To that end, keep only a little in savings (emergency fund), and put the rest in a 401k or IRA, invested in index funds. Index funds are a great 80% approach, because:
- They track an index (e.g. S&P 500) which is likely to go up and up in the long term
- They are very low cost since they are not actively managed
- You can watch them every day, or forget about them for two years
- Warren Buffet recommends them, and he seems to be doing okay
- DerekH 13y agoGreat advice. I get antsy when I start to have too much in savings. Saving is tough to master. I wish more people would embrace the emergency fund. It's so nice to have. You don't really need to worry about any catastrophes and if you want to splurge, you've got the money to take care of it. But, anything above your emergency amount, put that money to work. Funds that pay dividends are also nice to haves.
- dsutoyo 13y agolike your breakdown of the 80% solution vs 100%-optimal. Makes a lot of sense!
- schoash 13y agowhat is a good amount for the emergency fund? Is it lie 4 times the monthly income or even more?
- petervandijck 13y agoDepends on your situation. If you have kids and fixed costs, 6-12 times monthly spend (not income). If you're alone and have more flexibility, 3 times monthly spend.
- ffumarola 13y agoWould also suggest putting some money into a taxable account with investments on top of the 401k/IRA since they can't be touched until you're ~60 (without penalty, at least).