hey guys 
So I have around ~$20,000 sitting in a high-yield savings earning 4.5%.
Is this the wrong move? My bank always tries to have me sit down with one of their advisors, saying I am not doing all I can with the cash.
I already have a Roth IRA and a 401k, and I am only 23, so I do not see any huge costs coming that I need to have a ton of liquid cash for.
I just do not want to lose it all in the market either hehe
What would/do you do?
Thanks
Well you sound pretty responsible about money.
Is the money in your 401 invested in ‘safe’ slow-growing stuff? You’re young enough to take on some riskier, but with much more growth pontential, investments.
The typical rule of thumb is to take your age, subtract it from 100, and that gives you the percentage of your money you should have in the market (not in savings). So, you supposedly should have 77% of your money in the market (stocks, mutual funds) and 23% in savings (savings accounts, safe government and corporate bonds, T-bills, etc.). The idea is that the younger you are, the more risk you can take, because you’ve got plenty of time to earn more money by working if things go poorly for you in the market. The older you are, the less time you have to earn more if your stocks and mutual funds go belly up. As you get older, you adjust your investments accordingly.
Personally, however, I’d never have more than 60% of my money in the market, even if I was 18. You might be less conservative than me.
I have no problem with online savings at 4.5%. That would be a solid if unspectacular part of my portfolio. In fact, it is part of my portfolio, although my online savings are in a tax-sheltered retirement account.
My only advice is to educate yourself by reading before making any decision. Advice from a message board is interesting, but reading a number of sources is much better.
I think the point of keeping liquid cash around is to deal with needs that you don’t see coming.
Basically, you could argue either way. A safety next isn’t a bad thing, and a 20K safety net sounds about right. If you want to get fancy you could split up the money into staggered CD’s instead. Slightly less liquid, but still reasonable as a rainy day sort of deal. The return would be marginally better than in a savings account (but better is better).
Seeing as your already in a 401K and IRA, I would suggest taking some of the 20K (maybe 2 - 5K) and going to Scottrade or another online broker and investing it there. You could also set up an automatic deposit (say $50 - 100 per week) and see your investment grow from there. You’d still have plenty of ready cash should the need arise. You can still lay your hands on the money in a stock account fairly quickly (usually 3 days to settle sales); you just have to be prepared for capital gains tax if you’ve made money.
Depending on your age you might want to take a look at some appreciation calculators.
say 10k of it at your 4.5% vs. that 10k in a 10% (pretty reasonable, the overall market has returned over 11% average from the sources I can find) average return mutual fund over 30 years.
It can be a very comfortable retirement but of course the risk is there. 
23 and you have $20k in savings? AND a Roth and a 401k? I’d say you’re smarter than most 23 year olds.
You should have 3-6 months worth of living expenses in liquid savings. Are you planning to buy a house anytime soon? If so, the money should be in an account that you can cash out with no penalty.
At your age, you can tolerate a lot of investment risk, so make sure your Roth and 401k are in good growth mutual funds.
Other than that, I think you’re doing fine.
thanks guys I think I might continue to fund my roth and wait until 2008 for the roth contribution to go to 5,000 and go from there.
One quick question. And you seem reasonable enough to have already asked it.
When dealing with an online savings bank did you make sure they’re covered with FDIC insurance?
Yes that is a big factor for me. I mean I have built up a little just in case cushion that I want to grow but I am just not sure if mutuals are close to as safe as FDIC 4.5% from a bank.
Bills all paid off? 
If so, your strategy is reasonable, if not optimized.
You may look into some other accounts with better return though. My institution has a interest bearing checking account paying 6.00%. There are of course a few requirements, but not too bad. I would think you could get better than 4.5 if you look around.
Wow, you really seem to have a grip on your financial circumstances! Congratulations!
Meanwhile - it’s OK to leave the money in the online 4.5% account if that’s what you’re comfortable with. After all, it’s your money and your decision. However, do look into options so you are making an informed decision (which, come to think of it, you seem to be doing already).
Since your young, take some ‘play money’ and pretend to invest in the market. See how the results would have panned out next year. I was tired of people telling me at 40 to put MORE money in the market, instead of my 4.5+/-% savings.
The result: If my money was in the investments I picked out earlier this year with my ‘‘play money’’, I could have earned 5.25% instead of the 4.5 +/-% (it fluctuates). I simply tracked the investment I would have made. And that extra .75% would only have been on some of my money - not all of it. Big whoop.
My big-ass investment made earlier this year was in real estate. Real estate is cheap, money is cheap (low interest rates) and with the sub-prime fallout going on and foreclosures rising at record rates, rentals are going to be very popular in some areas.
Everybody pushes the market, but if you don’t understand the nuances and it doesn’t make you sleep at night, do something else. I felt I understood Real Estate better, especially the nuances where I live, since I’ve been in this area for 40 years. I am wishy washy about the market.
I forgot to ask that too. If you have some credit card debt, use your savings to pay it off. You’ll be able to rebuild your savings in no time if you have no debt.
Of course, if you have no debt, then hats off to you!
Pay off any high interest debt.
Then, if I were you, I’d put near every cent of that in the stock market, and forget about it until you’re 60.
Of course you don’t. No one does. But we take the risk because of the upside. Given that you have a long-term investment horizon, the short term fluctuations of the market don’t mean as much to you.
CD’s have some risk involved. Over the past year, there have been stories about redemptions being stopped on some CDs because they’re tied to mortgage backed securities.
If you really want something safe with a decent return, buy T-Notes, or T-Bills. Not very liquid, though.
I hate this idea of keeping that much liquid. If you have real emergencies, you can draw from ROTH’s without penalty. What’s the most something is going to cost you that is reasonable to expect? A thousand bucks for a new transmission? Who needs $20,000 sitting around?
I have a house and two cars, wife, and dog, and I never have more than $5K sitting around. When it builds up, it goes into the market.
At 23, if you feel your working situation is stable, and you have all your bills paid off (you should rather than paying interest on them), then you are doing the exact wrong thing. This is MHO of course.
It is impossible to know your exact situation without more details. For instance, I am fairly young as well, and have opted to invest some of my 401k savings in the high(er) risk planned investment options that the fund managers have available, but I have opted to take some extra money and save it in a savings account outside of the retirement plan to diversify my investments a little.
Like I said, it is impossible to know about you and your life on a message board, but it sounds to me like you are in the small demographic of people who are able to take on a lot of risk and possibly reap significant rewards. You could also loose a good portion of your money, but hey, your 23 - just start over again.
There is a point at which you make enough money that it is wise/profitable to seek professional advice on the investment of it. I don’t know if you are at that point or not - that is for you to decide.
I agree that at 23, $20K earning 4.5% is way too conservative. First of all, you probably have a very good job or have weathly and generous relatives to have that much already. If that is the case, then you should be able to ride out a job loss without too much trouble.
I’d leave no more than $5K in cash and invest $5K in individual stocks and the rest in index/mutual funds. Even with the recent tanking of the markets, the Dow, S&P, and the NASDAQ are all up at least 7.5% YTD. Compounded over time, that makes a huge difference.
You don’t need to have that much available cash until you have a family.
I think that if there’s a chance you’ll want or need that money in the next five years or so, e.g. for a house down payment, a low-risk investment is the way to go. The market is showing incredible volatility right now, and there’s no guarantee you’ll beat that 4.5% over the short term.
If you have no plans to touch that money for a long time, I’d put it in a few different index funds, maybe something like 40% S&P 500 (e.g. VFINX), 20% international (e.g. VGTSX), 20% small-cap (e.g. NAESX), 20% bonds (e.g. VBMFX). Then forget about it.
yeah I have my bills under control (just rent, car insurance, food)
I made the money selling websites in college and have a decent job (low 40’s).
I will have to look at this more. Thanks for this info and feel free to tell me more if you think of something