Hi,
I've been throwing money at a 401k since I turned 18 and, even with maxing out contributions, am not exactly where I think I should be so I'm turning my sights elsewhere, namely my rainy day fund.
I have two accounts, one for true "oh shit" moments ($10k) and the other in case I get laid off since I'm in tech ($40k). The $40k I have is in a HYSA at 3.3% that I haven't had to look at even remotely (knocking on wood).
A thread here caught my eye asking about the catch of investing in SPY and it doesn't really seem like there is one.
At this point, since I have a true emergency fund, would it be better to pull everything out of my HYSA and invest it into SPY or something else for the long-run?
To throw a little wrench into things, I also have this weird feeling that shit is really going to hit the fan soon here in the US economically but I've been comically wrong so far. I've been a lurker here on and off for some time and I'm well aware that trying to time the market is almost 100% of the time a losing endeavor but I'm not sure if there's anything on the horizon that might be a catalyst that I should wait for.
If I should keep it parked in a HYSA and just mess around with where my 401k is invested I'm a-okay with that, or if it would be smart to start looking at overseas Index funds I can do that too. Just not exactly sure where to go and looking for guidance.
Thanks!
40M – $40k: HYSA vs SPY for long-term
byu/1337bobbarker ininvesting
Posted by 1337bobbarker
5 Comments
How about SGOV instead for your savings? There was an 18% downturn as recently as 2022 where SPY lost a lot and took a few years to recover. That could happen again.
Investing is quite personal, so at the end of the day you know your risk tolerance and have an overall investment philosophy.
The biggest thing is to make decisions that help you sleep at night. A couple of concerns you’ve raised in this post:
1) You’re in tech and have the thought of being potentially laid off in the future (though that’s a risk all of us in tech have)
2) You have concerns about the US economy in the near future
3) You like having money in the bank for oh shit moments.
Based on this, I’d personally keep money in my HYSA and take out maybe 1-2k and put it in an index fund like SPY and start slowly contributing to it every couple of weeks or month depending on what you can afford.
That would give you the best of both worlds – you’re in the market and contributing + you aren’t risking the farm if the economy goes to shit (or if you’re ever laid off.)
This is a long-term game as you know and no need to put yourself unnecessarily at risk since having a HYSA is always a safe option.
So this is more of a personal finance topic, but..
You have to think about your “rainy day” fund as insurance. It’s not there to get 10%+ returns, it’s meant to maintain its value in the case you actually need it. You don’t want your rainy day money to sustain a drop in value (if the market does not perform well) at the same time you need the funds.
Now, your post is unclear. You first say 10k is your oh shit fund and then $40k is your “in case I get laid off” fund. To me, those are both emergencies. If you’ve determined you need $50k saved for emergencies, then that’s it. You keep all $50k in a HYSA like you’re already doing.
You also haven’t provided any other metrics for us to go off of you (your salary, your expenses, your debt, your net worth, etc.) but based off of your post, it sounds like you’ve saved what you needed, so from
Here on out start investing your additional funds.
It’s like this:
HYSA is basically your money, with the same buying power as it has today, but in the future. Your $100 buying power that nets you 4 large Pizzas today will still likely only buy you four large pizzas in the future, they will just be more expensive.
S&P is your starting investment but also with growth into the future. The growth will be sporadic and rocky, but it will almost always outpace a HYSA, and certainly outpace it over a long enough period of time.
For the long term, spy is definitely the right answer (and adding to it regularly). There will be bad years at some point, but the gains from the good years will vastly outpace the losses from the bad ones when you zoom out and look at the big picture.
HYSA is for money that you will need soon and need it to be risk free. You just need to decide if a 10k emergency fund is big enough (or alternatively, if you’re willing to pull from your SPY at an inopportune time if the 10k emergency fund isn’t enough when you need it and you need to tap into your SPY). The long term gains with SPY aren’t the question, the short term value at a given time point is.