Welcome To Day 6 Of Our Personal Finance 101 Series |
If you’ve already socked away some money for retirement in a 401(k) or IRA, you might be wondering whether you should dive deeper into the world of investing. After all, the funds you invest in retirement accounts have limits on when you can access them (unless you want to incur a high tax penalty). So it’s natural to consider investing into an account with more flexibility.
In this newsletter, we’ll dive into what some of those options are, whether it could be the right time for you, and some basic tips for getting started. |
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| Should you put your money into a high-yield savings account? |
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When considering investing, it’s important to sit down and analyze what your financial goals are. If you’re thinking about the short-term—say an upcoming home remodel, new car purchase or college funds—it could be a good idea to consider moving some of your cash into a high-yield savings account.
Thanks to continued high interest rates, bank customers have realized that they can earn 3%, 4% or more in interest on cash they have left sitting in traditional checking and savings accounts. Now, instead of earning pennies on the dollar (in July 2025, banks were paying an average of just 0.38% interest on traditional savings accounts), opening an FDIC insured high rate savings account can generate a larger return.
For example, fintech pioneer Betterment offers a “cash reserve” account that currently pays 4% and is FDIC insured for up to $2 million (or $4 million for a joint account). A growing number of fintechs offer more than $250,000 in FDIC insurance by spreading your money to different banks. That’s because the $250,000 FDIC insurance limit is applied separately to each depositor at each bank.
If the Federal Reserve begins cutting interest rates once again, it’s reasonable to expect that the annual percentage yield (APY) for these savings accounts will level out a bit. Still, it does not hurt to open one when the APY remains high and pivot if needed as rates change. |
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| Is it the right time to open a brokerage account? |
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If you’re looking to save for a goal that’s more than five years down the road, a brokerage account could be a great option for you. A savings account, even a high-yield account, likely won’t keep pace with inflation over the long term.
The most important thing to understand with a brokerage account is that there is inherent risk that comes with investing in the stock market. There is always a chance that you will see your account balance drop—which is why a brokerage account is more of a long-term play. On average, the stock market yields between 8% and 12% annual return.
Knowing your risk tolerance is important when opening a brokerage account, as that will influence the types of funds and stocks in which you’ll want to invest. If you’re unsure of what your risk tolerance is but want to get started with a brokerage account, you might want to begin investing in Exchange-Traded Funds (ETFs) or Index Funds, which hold a variety of assets like stocks, bonds, commodities—or a mix of the three. Single stocks always carry the risk of falling to $0, but funds can ensure you’re diversified right away, and reduce risk.
Even if you can only invest $100 a month, it’s better to start sooner rather than later. |
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| What are the benefits of opening a brokerage account? |
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| Unlike retirement accounts like a 401(k) or IRA, there are no annual funding limits on brokerage accounts (there are no income limits that stop wealthier people from opening them, either). While a brokerage account is a great way to supplement your retirement income if you are already maxing out your other accounts each year, the money you put into it does not have to be used when you are nearing retirement age. The assets in a brokerage account can be used for any purpose at any time.
Another benefit is that a brokerage account will allow for tax diversification when you retire. When you withdraw funds from a tax-deferred account such as a 401(k), 403(b) or Traditional IRA, it’s taxed as ordinary income. But if you also held a brokerage account, you could consider blending withdrawals from both types of accounts or using tax-deferred assets in years when you’re in a lower marginal tax bracket. Diversifying your funds like this can reduce the risk that unfavorable legislative changes to the tax code that impact one type of account will impact your whole financial plan.
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As we’ve touched on throughout this newsletter: Diversification is never a bad idea. This is based on the rationale that with a varied portfolio you can help offset losses in one area with gains in another.
Spreading your investments across asset classes like stocks, bonds and commodities will give you some added protection. For example, while stocks offer higher returns with high volatility, bonds can provide steadier (but lower) returns.
Do your research, and meet with a financial advisor if you’re able. There are many resources out there (including at Forbes.com) that will help you find your comfort level to start investing. |
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| We’ll see you in your inbox tomorrow, when we’ll wrap up this Personal Finance 101 series. |
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