Categories
Stock trading Strategies

Only invest cash you won’t need for five years

One big drawback of traditional and Roth IRAs: There can be penalties and tax ramifications if you withdraw funds before the age of 59 ½. Roth IRAs are more forgiving on early withdrawals — you can pull out contributions at any time, but you may be penalized or taxed if you pull out investment earnings early.

But that restriction might be OK because there’s a key rule of thumb to keep in mind with any stock market strategy: Don’t invest cash you’ll need within five years. Patience pays when investing — you need to give your assets time to weather the market’s ups and downs.

“A key rule of thumb to keep in mind with any stock market strategy: Don’t invest cash you’ll need within five years.”

If 59 ½ feels too far away, a taxable brokerage account won’t penalize early withdrawals, but it also won’t offer the tax advantages of an IRA or employer-sponsored account (most brokers offer both taxable and tax-advantaged accounts).

Opening a taxable brokerage account may be the next step if you’re already maxing out a 401(k) and an IRA, and you have idle cash sitting in your bank account. However, the following strategies can be applied to both retirement and brokerage accounts.

Leave a Reply

Your email address will not be published. Required fields are marked *