Where should I Invest my Short-Term ‘Stash?

Welcome to the third post in the Investment Series. For those just joining us:
Article 1 told you why investing in stocks is actually pretty simple, and
Article 2 described the volatile nature of stock returns.

So we’ve established that while long-term stock market returns have been quite predictable for over 100 years, with an after-inflation return of over 7% per year, we’ve also noticed that they fly up and down in an absolutely random manner in the short term. And “the short term” can actually mean periods of up to 15 years.

So: for long-term savings, like the money you are saving in 401(K)s, Roth IRAs, Canadian RRSPs and such, stocks are still the best balance of large long-term gains versus risk. You’ll see some alarming swings if you check the stock prices every day, but if you just open up your statement on the day you turn 59.5 to start your withdrawals, you will probably be pleasantly surprised.

What about money you need for more immediate needs? Say you are saving for a house downpayment that will take two years to accrue. Or you received a gift from your grandma to pay for your college education, but you won’t even be graduating from high school for three years. Here is a list of investment types and their current approximate return rate, listed in order from safest to most volatile (and most rewarding over time):

No Volatility:

  • Bank Accounts: the best I know of is ING Direct Orange Savings account – still only 1.0% right now. Checking accounts don’t deserve ANY of your money – enough to handle the monthly automatic-bill-pays only.
  • Money Market Funds (such as Vanguard’s Prime Money Market Fund) have historically delivered higher returns than savings accounts but not with today’s lowest-in-history interest rates. Less than 1.0%, so skip ’em for now.
  • Certificates of Deposit – where your money is locked up for a specified time period in exchange for more return. I just copied the following rates for today from bankrate.com/cd.aspx
1-year CD 1.31% APY ($1000 min. balance)
3-year CD 2.00% APY ($500 min. balance)
5-year CD 2.75% APY ($500 min. balance)


  • And, of course, the best guaranteed no-volatility place to invest your money may be paying off existing debt. Your mortgage, your student loan, or if you still have superbad loans like car or credit card debt, you need to get on those, emergency style, before you consider saving for anything else.

As I suggested in an earlier article called “springy debt instead of a cash cushion“, until you are completely debt-free it may make sense to use a line of credit as your cash cushion instead of short-term savings. Because which one makes more sense: saving for an upcoming purchase in a 1.0% bank account while simultaneously paying 4.5% on your mortgage, or putting all the short-term money into the mortgage and just borrowing back whatever you need at 3.25% in the form of a line of credit? Another reason I like this approach is that it reminds you that until you are mortgage-free, you are effectively borrowing for everything you buy. Not necessarily bad, but it is good to be reminded of this when you’re at the pub deciding whether or not to spring for another pitcher.

Medium Volatility/Medium Returns

  • High-quality corporate Bonds: These have recently delivered a 4-5% return and yet are much less jumpy than stocks. Take a look at the ten-year performance of a suitable Vanguard Bond fund (VFSTX) compared to my favorite big US index fund (VFINX):

After looking at that 10-year comparison, you might wonder “why would anyone buy stocks when the bonds do so well?”.  The answer lies in the longer term. Since its inception in 1976, the stock fund has compounded at 10.72%, while the bond fund (started in 1982) weighed in at only 6.99%. Over a 30-year period, a single $100,000 invested in stocks would have become $2.1 million, meanwhile a bond investor would only have $759,000. Still, for 1-3 year savings with a still-reasonable return, I’d feel fairly happy with the bond fund myself.

  • Mixed Stock/Bond Funds: Vanguard’s VBINX is a mixture of 60% large company stocks and 40% investment-grade bonds. In bad markets, it is safer than VFINX. In good markets, it underperforms the pure stocks.

For someone like me who wants a growing-but-semi-stable pool of money to use up over the next 5-10 years, a mixed fund can be a good choice. I can leave my long-term “old-man” money in stocks, but keep 5 years of living expenses in a mixed fund like this, and automatically make monthly transfers to the checking account to fund regular living.  In the event of a stock market crash in the long-term investments, the VBINX takes a much smaller hit and thus principal is preserved. Then I could wait at least 5 years for a recovery in the main market before topping up this fund again.

Hint: If you want to do a little fund shopping of your own, you can play with the same web site I used to generate the graph above. Start here and then start clicking around on fund types, or type a fund symbol into the box. Then you’ll see a “growth of $10,000” tab which will get you into the nice charts.

In all cases, do your own math on short-term savings and figure out how much you expect to earn from the investment. If you’re just saving to buy a tricycle for your daughter next month, or a $5000 used car in three months, there is not much benefit in worrying about investment returns.

Also remember that the more you cut your spending in general, the faster your savings accrue, meaning you don’t have to think about saving as much. Some dual-income families need to plan months ahead even for a new washing machine, while their Mustachian counterparts could buy an entire car with less than a month’s notice, and the only effect would be that they would pour less into their long-term investment accounts that month.  This flexibility and convenience makes your life much simpler and happier – yet another reason frugality rules.


  • Chris June 7, 2011, 12:22 pm

    US savings bonds didn’t make the cut? I-Bonds pay a variable rate, and can be cashed in within a year. The rate resets every 6 months, and can never be < zero. In the 6-month period starting in May, the rate is 4.6%. In the worst-case scenario, the following 6-month period would be 0%, which would still give you a better than 2% rate over the course of the year.

    In many ways, I-Bonds (at the current rate) are better than CDs: $25 minimum, tax-deferral, and no state income tax on the interest. One drawback is the $10k purchase limit per year, but you can double that if you're married (the limit is per-SSN).

    • MMM June 7, 2011, 12:32 pm

      You are right! Mr. Money Mustache loses some points here. I did look into US treasuries from treasurydirect.gov, and I know many investors use them. But I found the website confusing and non-intuitive so I was hesitant to recommend it. With so many choices, and so much apathy towards investing, I want to focus on easy things whenever possible.

      But if you can suggest a good website to learn about/invest in the bonds you mention, let me know and I can update the article.

      • Steve June 7, 2011, 2:29 pm

        Pain in the ass you mean. I buy from that site and I hate it. In order to log in to my account, I have to get a special card from my safe that is similar to save points of video games…where they ask me to look in certain boxes and provide them with the result.

        I mean it’s safe…but Jesus Christ…I just want to check my balance already.

      • James April 26, 2017, 1:49 pm

        You should look into this again – it’s worth it. Look specifically into the “Series I savings bonds.” These pay you inflation plus a fixed rate – currently, the fixed rate is zero, so they are paying 2.67%. When you first buy them, you are locked in for 1 year, and you can hold them up to 30 years. You get paid your interest when you redeem them, less 3 months of interest if you redeem before 5 years. They let you buy up to $10k of them a year. As with everything on TreasuryDirect, there are no fees and no taxes that I am aware of.

        There’s a reason they limit you to $10k a year – basically, this product will beat the shit out of any savings account you’ll ever find. No one would ever sell it to you privately. If after a year or two they start paying a fixed rate, too, you can always redeem them and reinvest them (though you do lose 3 months worth of interest if you do this more often than once every 5 years). For your true “emergency account” savings, I don’t think there’s any better place to stash them.

    • Steve June 7, 2011, 2:27 pm

      The other drawback is that Ibonds purchased now have a 0% fixed component. You will need to sell them which is a bit of a hassle, unless the inflation component begins to pay more than it has historically.

      I’m making over 3% on some of my ibonds that have a higher fixed rate right now. I’m a little reluctant to max out Ibonds this year with a fixed at 0%, knowing I’ll lose 2 months interest when I sell them, when I can buy CDs at 2.5% and hold them until a better rate comes along.

  • Jess June 7, 2011, 12:50 pm

    What about from a tax standpoint? If these are going into a taxable account, since they are short term funds, which of these would be most tax efficient?

    • Kira July 6, 2014, 9:18 am

      Tax strategy is a little more individual to each person’s situation because of all the nuances. You’re probably best off speaking with a tax advisor/CPA.

  • Kevin M June 7, 2011, 12:55 pm

    My dilemma is our so-called “emergency fund”. We keep basically 6 months of expenses here, plus we have another $5k (almost) saved in our HSA to pay a medical deductible should disaster strike. Part of me doesn’t like that $25k sitting around earning 1%. I’m tempted to throw part of the $20k into a short-term bond fund and try for a little more return. The other part says “shut up” and don’t worry about return, worry about safety and liquidity. We are debt free, except our mortgage at 4.825%. My job is about as stable as it gets. I am next in line to succeed the current owners, unless the business unexpectedly fails.

    • MMM June 8, 2011, 10:20 pm

      Hi Kevin! .. Just working through some of the recent comments and I must have missed yours.

      I think your emergency fund is costing you quite a bit of money. Since emergencies bigger than what you could handle with just a credit card, paid back in full with your monthly income, are probably incredibly rare, I would feel very safe having it in a bond fund. In the worst case, you would have to cash it in and it may be worth a teeny bit less than you bought it for. This is much better than your current situation, where you are GUARANTEED to earn several percent less per year on the emergency fund, forever – costing you $600 per year or more in foregone investment gains. Emergency funds are great for people just starting out and living on the very edge. But when your emergency fund is the size of a 2007 Mercedes, things are getting crazy.

    • April October 17, 2011, 12:44 pm

      First off, I’m loving your blog! My question has to do with paying off ones mortgage. I’ve read several times that you recommend this. I have about $45k in high yield checking accounts earning 2% as long as I meet the requirements (10 debit transactions, electronic statement, direct deposit) which is never an issue. I have thought about putting this money into paying down my mortgage (only $79k at the moment at 5.125%) but have been advised against this by every financial planner I have spoken with. Their argument is that the money would make much more than the 5.125% in the stock market or other investments over the 30 years my fixed mortgage is for (about 28 years left as of today), that the money is very difficult to pull out again if needed (my biggest concern), and that keeping a mortgage has benefits in regards to inflation-though at the moment I can’t recall what those were.

      I do not have any debt other than the mortgage. I clearly agree with your buy it with cash (or via a credit card that is paid in full each month) or don’t buy it at all philosophy.

      • MMM October 17, 2011, 8:05 pm

        I would definitely pay it off! With that $45k and a few extra payments, you’ll be mortgage free very soon! It is EASY to pull any amount back in the form of a line of credit, which would have an interest rate much lower than the punishing 5.125% rate you currently pay.

        You may or may not make more money in stocks in the long run, but a 5.125% Guaranteed return is great. Think of it as a stable dividend-paying portion of your portfolio. Then load up on stocks once you are mortgage-free (and maintain regular 401(K) payments for the longer term, even now).

        • April October 24, 2011, 10:11 am

          Can you give some additional information about how one would setup a line of credit? It makes me uneasy to take everything out of the bank and stash it in a very unliquid asset (house).

          My other concern is that I am currently looking at some nicely priced investment properties in my area. If I find one that meets the 50% & 2% rule nicely, I’ll need cash for the downpayment as well as remodeling. If I put the 45k in my current house, would I then use the line of credit to pull the money out again?

          I am very unfamiliar with this line of credit idea. Please explain.

    • DP January 26, 2012, 1:37 pm

      My understanding is that with an HSA you can actually invest your funds once they exceed a certain amount. I think it’s currently $2000. And apparently you can automate a process by which your bank “sweeps” your account anytime the balance exceeds $2K and puts the excess into your investments.

  • Bakari Kafele June 7, 2011, 9:51 pm

    June 7th!! I finally made it to the current days post! I don’t think I have ever caught a blog (that is updated so frequently) early enough to actually read every post. But here I am.

    • MMM June 8, 2011, 10:13 pm

      Hey, congratulations! Your unparalleled dedication to the MMM blog makes you part of a rare breed. I hereby grant you the status of Senior Mustachian!

    • Kira July 5, 2014, 8:07 pm

      I”m three years behind, but I’m determined to get caught up…

      • Plastic Kiwi July 28, 2015, 9:11 pm

        I’m four years behind, but I’ll get there too! (I have more time since I took the FB app off my phone!)

        • Greg November 3, 2015, 9:06 am

          I’m four years and five months behind – but I’m going to get there! Already had the talk with my wife and we are determined to get the process started! At 54 and 53 with a pile of credit card debt and a big mortgage its going to take some aggressive action, but I think we have the nerve.

          • Mambo February 15, 2017, 5:18 pm

            I’ve been reading here for 2 weeks nonstop from the beginning.

            Already cut my autoinsurance (only left liabilities – Saved $600 /year
            Move $1,500 from savings to a 19% Credit card – Saved $200/year

            Thanks MMM

  • Leni June 8, 2011, 7:38 am

    I like the formula for investing of my father, he suggests in addition to a dollar-averaging-program using your security-emergency fund for short term investing once you have enough other liquid asstes to cover an unexpected emergency. using the s&p 500 as a barometer, invest 1/3 of your security-emergency fund when the s&p goes down 10%. This in addition to your regular monthly investment. if the s&p goes down another 10%, invest the remaining 2/3 of your security-emerg. fund. Since the s&p will swing up as well down, it represents a picture of the total economy. Using this formula, this is your real opportunity. What if the s&p falls another 10% or more? in that case my father suggests you borrow twice as much as your last investment (2/3 of your total sec.-emerg- funf) and invest it. This give your capital a real boost. in the last 100 years 30% corrections are quite infrequent.

    • resiliantrene June 7, 2012, 4:38 am

      Hello Leni,
      I know you wrote this comment last year, but I am just getting around to reading this particular MMM post and its corresponding replies. I like your Dad’s idea about investing the emergency fund in the stock market when it drops. My question is: do you then leave those portions of emergency fund in the stock market for a year to avoid short term capital gains? I hope you see this post!
      Thank you!

      • Kira July 6, 2014, 9:21 am

        resiliantrene, you really need to speak to a tax advisor regarding the best strategy for you regarding short- vs. long-term capital gains.

        • resiliantrene July 8, 2014, 6:54 am

          Thanks, Kira, for weighing in on my question. Of course you are right.

  • Patrick June 9, 2011, 3:27 pm

    So your saying its bad to have two 2007 Mercedes in my emergency fund…and you want me to pay down my 3% mortgage? I’m talking with the DW right now…

    p.s. Love the blog. Better reading than ERE – ‘cooler’ than Simple Dollar.

    • MMM June 9, 2011, 4:24 pm

      Hi Patrick, thanks very much!

      Yeah, those fifty thousand employees of yours are doing a lot of smoking and hanging out by the pool table right now. I don’t know what your own life situation is, but I have never felt the need for a gigantic emergency fund in non-interest-bearing cash. I DO feel great reassurance having lots of savings that would back me up in an emergency. But I still want the savings to be working for me – whether in the form of a more-paid-off house (with an optional line of credit for emergencies), or a larger non-retirement investment account with various index funds and bonds, etc. You can STILL get money out of these other sources.

      In fact, I recently DID have an ’emergency’ where I had to fully pay off the mortgage on a rental house due to a (long-story) business situation. I sold some funds, and there was the money just a few days later! The stocks were far down from their peak of 2007, but it still worked out far better than having all the savings in a checking account this whole time. And most people will not be as foolish as me in inflicting a multiple-hundred-thousand-dollar emergency on myself!

  • Pachipres June 13, 2011, 10:23 am

    We have gotten ourselves in a finanical dilemma that we are committed to changing but we need some advice.

    We took 15k out of retirement portfolio plus we are maxed out on our credit line of 10k. We also have another 11k on t he Visa. So overall we are about 36k in debt. We are now paying 6.5% interest on this credit line. We were thinking of paying the $150 fee(CAN) to open up a secured line of credit where interest is 4%. and consilidate all the debt in one place. I am not sure we should do this or just take more money out of the investments to pay this Visa and then slowly try to get out of debt.

    Would appreciate any feedback here.

  • Enginerd September 3, 2011, 10:31 am

    MMM, while I admire your overall approach in getting people to invest, I have just one small disagreement- that you should “always” buy an index fund instead of individual stocks. Now hear me out before you flip- I’m not talking about buying stocks you heard about on TV, your friends, “some guy” your friend knows, etc.
    First, dollar cost averaging does not make sense to me. If prices are high, why balance them out with prices that likely will be lower later? Why not reduce (not necessarily stop, just reduce) the amount of money put towards the investment so you can buy more when it starts to go down? To put it in Mustachio terms, you’re basically saying that you’re willing to pay any price for your index fund. You stock up on items when they are on sale at the grocery store, I would think you would want to approach the market in a similar fashion.
    Second, it is a fact that some companies are simply better than others, and you can see some of this through simple things like increasing earnings per share on a consistent basis, and revenue growth. Yes, it will take some homework and time to sort these out. No, most people don’t want to spend the time doing this. But the fact is, when you own an index fund, you own stocks in companies that are failing, losing market share, having accounting scandals, etc. Basically you are knowingly buying the losers along with the winners. Now, i’m not advocating throwing money into a bunch of individual stocks with reckless abandon. However, I feel better in looking over companies myself and building a diversified portfolio. That way, if my investments tank (which is highly unlikely, will explain shortly) at least it will be my responsibility and not because I knowingly bought the bad with the good, the bad which perform especially bad in a downturn and drag down index funds.
    Now, what I think you are missing in your investment strategy, although you do mention it from time to time, is dividends. While index funds do pay dividends, they tend to only be about 1-2%. Several stable individual stocks pay in the 4-6% range- utility companies, the main telecoms (Verizon and AT&T), tobacco companies, oil&gas master limited partnerships (MLP). In a flat or volatile market, these are your best friends, as the dividend yield increases as the stock price goes down. This “dividend parachute” will also slow the decline of a stock if the general market is taking a horrible beating, as the stock becomes much more attractive as the price drops and the dividend increases. That way the price of the stock is more stable and you get paid more. However, these stocks do tend to stagnate during periods of high growth, as people will take money out of these and into faster growing stocks. Having about 5 high dividend yielding stocks from different sectors will outperform a stagnant market, and will usually outperform a volatile one. This is of course assuming that you re-invest the dividends to increase your dividend payments over time. Again, I am not saying it’s easy to outperform the market, but this will put you in a very good position to do so if you do the work.

    • MMM September 3, 2011, 12:09 pm

      Your points are all spot-on as part of the methods one would go about if they wanted to beat the market with their individual investing prowess. The only problem is, a shocking number of massive and rigorous academic studies show us that we ALL vastly overestimate our own ability to beat the market, and the 50% or so that do so by chance, attribute it to their investing skill rather than chance. John Bogle, the founder of Vanguard who ran it for 40 years or so, says this on the matter, “Not only do I not know anyone who is able to consistently beat the market on a risk-adjusted basis, I don’t know anyone who knows anyone who can do this.

      Having said all this, I still intuitively believe I can personally beat the market. And I even dabble a bit on the side with some timed purchases to try to do so. But knowing the research and knowing that I am a human who overestimates my own skill, I make fun of myself while doing this, and consider it an entertainment and gambling exercise.

      You must at least carefully read “A Random Walk Down Wall Street” to see if you believe the studies. Personally, I tend to believe scientific studies over my own intuition in most cases. That’s how we get ahead as a species – science.

      • Enginerd September 3, 2011, 12:48 pm

        I have read some studies. The problem with the data in this case is when and how you choose to look at it. For example, if you did a study from 2007 to 2011 (until about a month ago), you would conclude that stock prices do not significantly trend over time, they just fluctuate, as the S&P is largely unchanged due to the crash in 2008 and subsequent recovery. Or you could study 1930’s until 2007 and calculate an average rate of return and conclude that “buy and hold” is always the best investment method. It really depends on when you put the markers on index funds and when you actually bought and sold certain stocks when doing a study.
        Fund managers move a lot of money and leave points on the table when making trades, as they influence the price of the stock by buying or selling. The individual investor does not have this problem. These changes can easily be the difference between matching the market or beating the averages by a few points.
        As for people who beat the market over time, it all depends how you define “time.” Successful hedge funds beat the market all the time for years on end. You never know if they can do it for a 20-30 year window, as most either have a bad year and get wiped out by investors pulling money out like a bank run, or retire after 5-10 years as this is an incredibly stressful profession.
        While I don’t claim to be a stock guru, it is a hobby of mine, and like yourself I enjoy seeing if I can beat the averages. I do keep a large portion of retirement savings in more stable funds, and have some fun with non retirement accounts. I also completely agree with you that controlling spending is far more important than trying to win with investments, and I really enjoy this blog. Keep it up.

  • Mark May 22, 2012, 8:46 pm

    Would you recommend stashing savings in a bond fund for people without sizable cash-on-hand savings? Is this a good place to start, or should it be on top of a X-months of expenses savings account?

    My wife and I are cutting costs left and right, so I am expecting to see a small monthly accumulation. Our current savings would be about 1 month of the bare minimal monthly expenses (mortgage and ramen). I would like to split our freed up income 3 ways between savings, paying down mortgage principal, and putting a little into a Roth IRA. I have good job security for 1 year (and reasonable for 2).

    • FSG December 19, 2014, 11:55 am

      Mark I may be off base, but I like the idea of “stashing” in a Roth. You can take out the contributions to this at any time, but not the growth portion. Although I don’t like the idea of withdrawing, there may be a case where you might have to. There’s probably a good chance you will not need to withdraw unless it is for early retirement. If you are reading this blog, and cutting costs, you will not be withdrawing unless it is a true emergency. Put in a little or a lot each year, and the growth will be tax free.

  • hands2work September 7, 2012, 10:33 am

    how do you feel about cd ladders? waste of time or good way to stash your money at a higher rate while keeping a rolling liquid amount?

  • SKRL February 12, 2014, 2:58 pm

    HI MMM,

    Going through all the blogs from the beginning.

    My scenario, pls. do let me know your thoughts:

    I am from India, but have been living in the US for about 6 yrs now, and plan to stay here longer or may be even for good.
    Now, as I am not a US citizen still I have the option of investing in India as well, which is a growing economy, just the fixed deposits (CD’s) earn me around 8.75%. I also have opened a vanguard fund account and keep investing a regular weekly stream.
    My question is would it make sense for me to just invest in the fixed deposit in India & make a flat 8.75% without any risk apart from the currency frequency (which sometimes can be volatile) or just go with vanguard for a 6-7% in the long run, which I might or might not make.
    What are your thoughts?

    Also, I can get a little aggressive & even invest in mutual funds in India, which can get me around 15-20% return, but again the currency fluctuations are a risk.

    I would really appreciate your comments/thoughts.

    • Shashi September 9, 2014, 8:16 pm


      If you plan to live in the US for long term, I would not recommend investing in FDs or MFs in India.

      FDs – Even if you invest in FDs in NRE account the conversion from USD to INR and INR to USD will diminish your returns. You will also be paying taxes in US on the interest earned in these FDs.

      MFs – If you invest in MFs in India, you will have to declare the returns and file taxes as per PFIC regulations.

      If you have any investment in India in form of FDs, Insurance Policies, MFs do not forget to File FBAR.

      Considering all the complications, taxes and risk I would not recommend investing in India, instead max-out your tax advantaged accounts and invest the rest in your Vanguard accounts. Hope this is helpful.

      • SKRL September 10, 2014, 8:36 am

        Thanks Shashi for the reply…

        I thought only US Citizens and US residents need to file FBAR (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR), for now I am neither of those two, but yes in the future I most probably will be. I am still awaiting my GC. But I do agree about the currency fluctuations which you can never predict.
        Its been a while since I left the initial comment and I have more or less decided to not invest much in FD’s or MF’s in India, so thanks for reinforcing my thoughts.

        • Shashi September 10, 2014, 10:23 am


          Even if you are not a Citizen or a GC holder you have to file FBAR if you are a US Resident as per IRS (substantial presence test is one criteria)

          You can call the IRS and confirm.

          “United States persons are required to file an FBAR if:
          1.the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
          2.the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

          United States person includes U.S. citizens; U.S. residents…”

          • Nice Joy September 4, 2016, 11:59 am

            I have sent money to India and put it in FD when dollar was in 40 s.. Now dollar is in 60s. I don’t believe the Indian financial institution’s that handle investment. Not reliable as US system. Transferring money back and forth diminish its value it is again timing the market which don’t make sense in long run. If you don’t follow typical Indian immigrant style life then you are ahead of the game. I have been following MMM for a year.

          • Nitin November 13, 2017, 2:42 pm

            A lot of people assume that since they’re not citizens or hold a green card, they aren’t residents of the United States.

            It is important to note that your resident status depends on the context. In the context of taxes and investments, you ARE considered a resident if you pass the IRS substantial presence test (found on irs.gov) even if you DON’T have a green card.

        • Nice joy November 25, 2017, 9:24 pm

          I agree with you I Will convert my INR to USD whenever the USD value gets lower.

    • Popeye February 12, 2020, 5:33 pm

      Another few factors for immigrants to consider are:
      – Do you anticipate future expenses in your country of birth? (E.g. for supporting family, or just taking holidays there…) In that case, placing some investments there might be prudent, as it will be balanced by spending there.
      – Diversification. I believe it’s generally wise to spread a portfolio across multiple parts of the world.
      – Local inflation. An 8.75% return, as mentioned here, is of little use if inflation is 6-7 percent.

  • Brian May 12, 2014, 1:44 pm

    Hi Mr. Money Mustache! I think this may be my first comment but I’ve been reading lots of your blog this past year. Thank you for so much amazing information!

    I’m at a point where I have an adequate-sized emergency / short-term savings fund at a local bank and I’m looking for where I should now put the monthly income that I was devoting to that account (since the interest rate is insanely crappy). I already have a ROTH IRA with Vanguard and was originally thinking about opening a separate non-retirement account with them as more of a “mid-term savings fund” or hopefully my “pre-age-65 early retirement fund” – using the Total Market Index Fund as you had suggested in another article. Anyway, the more I think about it, it seems like it would actually make the most sense tax-wise to dump the money into my ROTH IRA since I could withdraw at least the principal if I really needed it without being taxed. I guess my question is, are there any advantages to saving money in a non-retirement account with Vanguard or does the ROTH IRA sound best? The only advantage I can see is that perhaps you’d need something like that if you already contributed the yearly max to the ROTH IRA. Thank you very much!

    • FSG December 19, 2014, 12:06 pm

      It appears as though you have thought given good thought to this matter, about using the Roth IRA. Your thoughts are exactly what I tell my son. The growth will hopefully grow tax free. Need to keep some “stash” out of the traditional retirement accounts for early retirement.

  • Juanita September 3, 2014, 11:48 am

    Springy debt makes sense to me too and I’ve been doing this all my life really mostly because I was never able to create a decent savings account, well in fact I didn’t put in the effort to make it a priority. The good side is that credit cards give a 30 day grace period before charging interest. So if you pay your previous months charge in full, no finance charge! The bad side is this springy debt is a never ending cushion that you may mistakenly view as always available and up to the limit of your credit limit This has been my Achilles heel. When my debt and payments hit an all time high I had to carefully track my balances, interest and rate of payoff. Having multiple cards designated for car, taxes, house repair etc has helped me the most plus it helps my credit score. You should do what works for you.

  • JavierC March 4, 2015, 12:56 pm

    Mr. Moustache,
    I know I shouldn’t expect free advice from anyone or anywhere but seeing as you give a bunch of it any I’m willing to take the risk of embarrassment.

    Here is my financial situation:
    Wells Fargo Credit Car – $916 balance @ 21.15%
    Wells Fargo Personal Loan (BIG MISTAKE) – $3746 balance @ 18.25%
    Wells Fargo Line of Credit – $2169 balance @ 27.99%
    Chase Credit Card – $8216 @ 15.24%
    Nordstrom Credit Card (wife not me…) – $700 @ 15.24%
    Chase Auto Loan – $10650 @ 4.74% (2014 Subaru we put down $15K+ and we make big payments monthly)
    Freedom Road Financial – $6231 @ 5.99% (Recent Moto purchase BEFORE I began reading your blog)

    Current Liquid Assets:
    Wells Fargo Checking – $1911
    Wells Fargo Savings – $ 10,505

    Wells Fargo Brokerage Account – $16,530 (In the process of being transferred to Edward Jones Mutual Funds and Bonds)

    What do i dooo?

    My wife and I are newlyweds (1 year strong) and I am trying REALLY hard to get us on some solid debt free ground.

    • Mr. Money Mustache March 4, 2015, 2:40 pm



      That debt is an EMERGENCY – you need to liquidate the brokerage account and drain the savings account and put it towards the credit cards and other loans, in order of highest interest rate first. Saving and investing comes AFTER getting out of ultra-high-interest debt.

      This needs to be done BEFORE you eat anything fancier than a baked potato, because you are in the most ridiculous financial situation any reader has sent me since starting this blog four years ago.

      After all of those are paid off, you can move on to the car – sell it and buy one you can afford in cash. $7k or less.

      After that, get back in touch with me.

      • jessica March 4, 2015, 7:40 pm

        Oh shit son! MMM is gonna mentor you!

        The great news is you are practically debt free by the end of next week. The car should take 2 weeks, given all the other online payments and transfers that you need to make stat.


        • BCB March 5, 2015, 6:37 am

          That Subaru was a miserable mistake. You could have paid off all of your debt (less the moto) with what you put down on the comfort-mobile. If you were riding your bicycle instead, you would be consumer debt free, never paying 20% plus interest ever again. Then you could add to that brokerage account rather than draining it.

          What is more, you are kind of stuck because the Subaru has probably now depreciated $5-10k since you bought it (Cars -especially newer ones – are such an awful place to put your hard-earned cash!). You could still sell it and cut your losses since you put down a large down payment (You should). Your situation is completely fixable, assuming you have a large income. Now that you have MMM on your side, you will learn to stop making consumer-sucka decisions and be rich in 10 years! Cheers!

      • Javier Cortez March 31, 2015, 11:17 am

        What the hell?!? I didn’t know anyone responded to this post! The notification went to my junk mail!

        Well the advice is great! I have since paid off a large portion of the credit card debt (Higher interest ones) and stopped spending on bullshit eating out and daily purchases I don’t need! My checking account has literally bulged and I’ve been putting that extra cash towards all that debt! Keep in mind I didn’t realize all my mistakes until I read this blog so give me a break! I’ll keep on top of it and do what I can to get ALL of this paid down before my wedding on May 9th. That way my wife and I start out with a debt free slate! Thanks for all the advice!!

    • Plastic Kiwi July 28, 2015, 9:39 pm

      Javier I hope you are feeling more in control now?

      • Greg November 3, 2015, 9:16 am

        OMG, our situation is like Javier’s except no savings account and a mortgage of $210K, plus on the hook for one more year to an expensive private college for our daughter for $27K. Oh, and a little more CC debt.
        I know, I know, EMERGENCY!! I was in denial, and blind – I’m seeing the light – I promise.

        I’m thinking sell the house, pay the debts, then rent, start saving?

  • Rebecca April 8, 2015, 9:10 am

    I’m new and devouring your site and trying to wrap my mind around how someone working on some New Stubble Growth should handle the following:

    We (married couple, early 30’s/late 20’s, one kid, one cat–she matters, too, only debt is our mortgage) put $972/month into savings accounts. Yes, multiple accounts, because it’s fun? (They’re all at Capital One 360.)

    Though we set aside a decent chunk each month for a couple of non-mustachians, our savings balances are surprisingly small. Most of it is just set aside for future bills (property taxes & homeowners insurance, auto insurance, the once a year trip to the vet for our fat cat, tag renewal, etc) and for unpredictable but ultimately expected expenses, namely auto maintenance and gifts (Christmas, birthdays, weddings, babies, whatever). The rest is for a small EF.

    I’ve drunk the Kool-aid, I want to make my bucks work harder for me, and I want to know: How does one handle those predictable and unpredictable (but ultimately expected) expenses when you have a tiny little Baby ‘Stache and you want a nice, fluffy, Hipster Beard Garden ‘Stache? Continue to maintain a savings account for what are essentially bills and delayed spending? Throw all $972 of that savings into the mortgage/beefing up ROTH contributes/investing, and just invest/pre-pay less money on the months when the big bills come due? Some other option I’m not thinking of?

    Obviously we’ll be working on getting our monthly expenses down to free up more moolah, but until then? I’m all ears (but not really–that would be weird)!

    • Jjohn1980 April 21, 2015, 8:54 pm

      I would check out YNAB (You Need A Budget). My wife and I have been able to save more $ since we started using this budget software.

    • Popeye February 12, 2020, 7:26 pm

      And the fat cat needs to eat less!

  • Alyssa April 24, 2015, 2:34 pm

    Slowly going through this blog one post at a time. it’s giving me a lot to think about.

    I’m still undecided on what to do with my cash savings. I have around $40k in an emergency fund and another $40k in planned spending accounts (home maintenance, car, vacation, sci fi cons), all in high interest savings accounts @ 1.85% (rrsp and tfsa are already in index funds). No debt other than a $98k mortgage @ 3.5%, which I don’t want to put that money on since you can’t easily get it back out and a loc would cost more than 3.5%. I could put some of the planned spending money in a stock/bond fund, since I have no intention of buying a car anytime soon and a loc could cover home maintenance expenses if anything happens and it’s a bad time to pull my investments.

    I’m hesitant about moving the emergency savings though. If I had a job loss or something, the bank could cancel my line of credit. And it could be due to an eeconomic downturn, in which case my stocks would tank at the same time. I guess I could at least put it in some GICs? Rates aren’t that much better though.


    • Plastic Kiwi July 28, 2015, 9:30 pm

      I’m VERY far from an expert, this just my opinion, but if I had $80k laying around I’d pay that off my $98k mortgage tomorrow!?! Like many I’m reading through this blog since the beginning of time…and there have been a few discussions of emergency fund/invest vs paying mortgage already that may help you decide based on your own circumstances. Have a trawl through and see what you think – also look at the recent fear/insurance articles.

    • nice Joy September 4, 2016, 11:14 am

      Ally bank offer 2% for CD.
      Do not pay off the mortgage… You are only paying 3.5%…. and you get at least 1% back out of 3,5% when you file tax ……so you are only paying 2.5% interest on that mortgage…. If you invest that money then you can make 7% . 2.5% VS 7 % or more…

      I have 3.25 % mortgage ….I am investing my savings…

      • Joy November 12, 2017, 7:00 pm

        I just learned that you don’t get any money back from your mortgage interest if your deductions are less than standard deductions.

  • rs794 April 6, 2016, 7:00 pm

    ” In the event of a stock market crash in the long-term investments, the VBINX takes a much smaller hit and thus principal is preserved. Then I could wait at least 5 years for a recovery in the main market before topping up this fund again.”

    I’m confused here about what you are waiting to top up. Surely you can’t predict the market so after a crash you just continue your same investing strategy as before? Or you expect a stock market recovery so you put all your money into stocks after a crash and stop investing the mixed fund?

  • Rob May 21, 2016, 8:17 pm

    I’m actively saving for the down payment of a house, which I expect to take about 3 years. I’m trying to decide where to keep this money. Based on this post, I would be going with the recommended bond fund, but I know this post is a few years old and it seems some of the conditions have changed.

    For example, if I look on the VFSTX page on Vanguard’s site, the average annual 3 year return is 1.73%. Seeing as how I could get a 3 year CD at eloan at 1.75% (min 10k deposit), the bond fund doesn’t look so much better. I suppose the one advantage is that I could make monthly contributions to the bond fund, whereas multiple CDs would have to be bought less frequently… unless I put away 10k / month, which I’m not :(

    If these days the bond fund was really giving the 4-5% yearly the article mentioned, it would be a no-brainer. Wondering if anyone has some thoughts on this? Any perspective I’m missing?

  • Jeff Schroeder July 22, 2016, 5:38 pm

    Sadly, google advisor was shut down. You might want to disable the link as it is broken now.

  • Ben August 21, 2016, 12:36 pm


    In the chart above comparing VFSTX to VFINX, what is the number in the Y axis? I looked up the same date ranges and came up with totally different looking charts.


  • ProfPayne September 12, 2016, 2:29 pm

    Another valuable post! I’m slowing reading through all of them (so happy I found your blog!). My, perhaps very dumb, question is this: What is the best way to pay your quarterly taxes (mine are quite high and differ year to year) without leaving money sitting in a savings account? I have 20K in my local (Chase) savings “Emergency/BS Tax payment” account, and I know I’m not maximizing my earnings.

  • Kai November 19, 2016, 4:39 pm

    Hi MMM,

    First, incredible blog. You’ve single-handedly gotten this 27-year-old thinking about investing and planning for his retirement! This year I maxed out my employer 401k (with match) and Roth IRA, living off my salary ($58k/yr) and savings I had in the bank. Thank you.

    I have a dilemma: I just sold my individual stocks and high-expense managed funds, and now have another decent chunk of cash (~40k) that I desperately want to put to work.

    My question is: do I hang on to some of this $40k until next year so I am again able to live off of savings and again max out my 401(k) and IRA? Or do I buy some excellent Vanguard index funds? Or is it a mixture of the two?

    I have a sneaking suspicion my goals matter here. Broadly speaking, I’d like to save as much as I can for retirement while also growing a pool of money for a down payment in 7-8 years.

    Thanks so much for any advice you can provide!


  • Rosie Garabito April 8, 2017, 8:13 am


    I’m obviously new to the whole mustachian lifestyle, as you call it! However, I’ve found that many of my values are similar to yours. I’m reading your blog from the beginning to the end and I’ve noticed that you continuously claim that its better to pay off your students loans before investing your money anywhere else. I could definitely see your point of view and reasoning behind it.

    However, I have a different situation, I think. I am an educator. I’m currently teaching in a Title 1 school. As long as I stay in a Title 1 school for five years consecutive years (which I will) the Federal Government will pay back my student loans, up to $17,500 because I am a special educator.

    As of right now, my husband and I have figured out an approximate amount we should pay off each month so that at the end of the fifth year, we will have a balance as close to $17,500 as we can possibly can. Would you continue with this plan? Or stick to your original plan of paying it off?

    As a side note, I am in my second year of teaching, so I still have 3 years left before I can apply for the loan forgiveness program.

    Thank you for your advice in advance! My husband and I are new but faithful readers and have discussed this frequently the past couple of weeks/months.


  • Tim July 12, 2017, 7:04 am

    “And, of course, the best guaranteed no-volatility place to invest your money may be paying off existing debt. Your mortgage, your student loan, or if you still have superbad loans like car or credit card debt, you need to get on those, emergency style, before you consider saving for anything else.”

    Just to clarify, does this mean pay off my mortgage completely before even considering saving for retirement?

    • New Father Finance August 10, 2017, 7:51 am

      Investment choices needs to be put in the context of expected rate of return. If your credit card debt is 15%+, it may make more sense to pay that down before saving for retirement in a market that expects 8% return (this can be different if you company matches your investment, in which case your 401k return is 108% in the first year). A mortgage rate is probably around 5%, which is less than the 401k’s 8%, so retirement savings should come before paying extra on your mortgage.

      • Paul August 10, 2017, 9:09 am

        Often, as in this post, the advocates for investing in the stock market rather than paying off a mortgage ignore risk. The risk free rate of return for paying off your mortgage is the interest rate on the note, less about 1% depending on your tax bracket. (because of the deduction for interest on mortgages) The risk free rate of return for paying off a CC is the interest rate on that account.

        So, the first sentence in the above post should say “Investment choices should be made in the context of expected rates of return, time horizons, taxes, and risk tolerance”. Simply using an assumed 8% return for investing in the stock market as justification for not paying down a mortgage and instead investing in stocks ignores risk. Stocks can be very volatile in the short term. While I agree that investing in a 401(k) should be a long term investment, saving for retirement instead of paying off a mortgage depends on the circumstances of the person making the decision, including risk tolerance, age, the age at which you want to retire, amount of emergency funds, etc.

        When folks get into financial difficulties it is most often because of a job loss and the resulting impact on cash flow. Not having a mortgage payment during such a time can be a lifesaver. Having a mortgage and higher 401(k) balance is a very different situation when cash flow is substantially reduced or eliminated altogether for some period of time.

        Just food for thought.

  • Nice joy November 25, 2017, 9:16 pm

    VBINX is a great option but VWIAX is very similar but Better. Very good option for keeping the emergency money, but just stash 10% more to adjust to market swing.

  • Ava April 28, 2018, 8:23 am

    I appreciate how specific you are! Too many financial advice gurus are super vague… Fortunately I have read/understand enough where I know exactly what to buy when it comes to indexed stocks… I must admit I am wholly ignorant of what kind of bonds to invest in. It has taken some time and a lot of education and effort but I feel my goal of finally becoming an investor approaching! I will have set up a Roth IRA by August 2018!

  • Crusader September 25, 2019, 11:05 am

    Comment I wrote on how I think of the breakdown of “Retirement Investing” vs “Emergency Fund/Short Term ‘Stache Investing” on MMM’s Youtube video on Emergency Fund based on my readings of his blog on investing.

    “I think you should also point back to your old article on what to do with your Short Term ‘Stache. Which would touch on Asset Allocation, from what I roughly interpreted your writings into my investing as all retirement accounts should be in Stock Index Funds. Which for me is S&P 500 in my company 401A (does not have a total market available in the account with fidelity) for a very low rate, and my ROTH IRA with Vanguard is invested in VTSAX. Where the brokerage account, where after-tax money gets saved, can go into the VBIAX, which is the Vanguard Balanced Fund of 60% stocks and 40% bonds, and basically is the VTSAX and VBTLX put together in that proportion. So it allows increased yield without the volatility of pure stocks provided by the stability of the bond allocation. You also mentioned quality corporate bonds, which thankfully people can easily invest with Vanguard as of 11/07/2017, six years after your wrote that Short Term ‘Stache article, in the Corporate Bond Index ETF, VTC. So a emergency fund in a brokerage account can be invested in both to increase yield, but have reasonable stability to liquidate in down markets without too much loss.

    So based in my interpretation of your writings this is how someone would have the best way to maximize yield of their money for retirement and short term ‘stache while still having volatility mitigated to an acceptable amount.”

    • Zack December 4, 2021, 7:20 pm

      Hey Crusader,

      Apparently, great minds think alike. The exact reason I just revisited this article was to perform a ctrl+F search on this page for “VBIAX” to see if anyone else considered stashing their emergency fund there, and it turns out you and I have the EXACT same asset allocation – Company 401k is invested in a Fidelity S&P 500 fund (VIIIX), ROTH IRA is all VTI, and this week I plan on moving $3,000 of cash I have sitting in my checking account to VBIAX in a taxable brokerage account.

      I’m sure your ‘stash has continued to grow nicely since posting this comment two years ago!

  • Tim October 21, 2019, 1:41 pm

    I wonder how your advice would change with the current state of things? Are you still keeping a majority of your day to day in a balanced fund?


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