One of the difficulties of being a saver in a low interest rate environment is the fact that you don’t receive a good yield for the money in your account. In many cases, the money you are saving for use during emergencies or for short term goals like travel or a down payment on a home isn’t meant to provide you with a good yield. The priorities for such money are usually liquidity, accessibility and safety.<\/p>\n
However, if you can stomach the risk involved, you can increase your chance of a higher yield by keeping money for such goals in a taxable investment account.<\/p>\n
I actually use taxable investment accounts for my savings goals. I contribute regularly to an account that serves as my emergency fund, as well as to an account that I recently started as a travel fund. These accounts offer the potential for much better returns than what I see when I contribute to the “regular” savings account with a much lower return. (The money contributed to the “regular” account is meant for paying quarterly taxes, so I like it to be readily available with the capital not at risk in any way.)<\/p>\n
This allows my money to grow at a better rate until it is used. In the case of the emergency fund, I like that it has the potential to keep growing for years. I continue to add money to it each month, and it grows through investment returns as well. With my travel fund, I expect to use the money a little more regularly, but I will keep replenishing the account with automatic contributions. Once again, I have the potential realize better returns on the money, boosting the amount I have available to use for travel down the road.<\/p>\n
The flip side, though, is the risk. With recent volatility in the stock market, it’s easy to see how it can be nerve-wracking to keep money for your goals in an investment account. I try to limit some of the risk by using index funds and ETFs, as well as by using a slightly larger allocation of bond funds than I use in my retirement account.<\/p>\n
Another reason I like this arrangement is due to the potential for tax deductible spending. The last time I had to use the money in my emergency fund, I had to sell some of my shares at a loss. Because of how much I had in the account, it didn’t significantly deplete my fund, so it didn’t bother me. In fact, I was able to get the capital I needed to for the emergency, and then, because of the loss, I was able to gain a tax deduction for the investment loss. I haven’t used my travel fund yet, but if I have to sell at a loss, I will have another tax deduction. The prospect of being able to cover my costs, and get a tax deduction to boot, helps reduce some of the potential pain involved in selling at a loss.<\/p>\n
This method isn’t for everyone; you should carefully consider your risk tolerance and your financial situation before employing such a strategy.<\/p>\n","protected":false},"excerpt":{"rendered":"
One of the difficulties of being a saver in a low interest rate environment is the fact that you don’t receive a good yield for the money in your account. In many cases, the money you are saving for use during emergencies or for short term goals like travel or a down payment on a […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[174],"tags":[520,74],"_links":{"self":[{"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/posts\/6672"}],"collection":[{"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/comments?post=6672"}],"version-history":[{"count":1,"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/posts\/6672\/revisions"}],"predecessor-version":[{"id":6673,"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/posts\/6672\/revisions\/6673"}],"wp:attachment":[{"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/media?parent=6672"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/categories?post=6672"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/couponshoebox.com\/tips\/wp-json\/wp\/v2\/tags?post=6672"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}