Becoming a big-time investor doesn’t start with buying dividend stocks and real estate. First, you must appreciate every dollar you earn.
The purpose of every dollar you earn is to earn more dollars. That’s right; your money makes you money.
The first place we can start earning income from our money is in the banks. Not only does the government protect our resources (via FDIC), but we can also collect a decent yield.
Will Being Cheap Make You Rich?
Welcome back to the Middle-Class Investing series (101, 102, 103, 104), where we turn you from broke to an investor in no time flat.
Let’s start earning interest. The most challenging part of investing is trusting someone else with your money. We all want to shove our money under a mattress to protect it.
However, with inflation, that’s not how we best protect our resources. Our money needs to accumulate interest so that we capture the effects of compounding.
Luckily, this is the best time to be a saver in 15 years. But where should we start our saving and investing career?
Long-Form Content is the Future
High-yield savings to the rescue. The best place to start your middle-class investing career is with a high-yield savings account.
I opened my HYSA in 2019 when I first learned about interest and compounding. Today, my Discover HYSA is the foundation of my wealth creation.
I earn 3.3% interest on my HYSA and receive 1% cash back for my linked debit card. This is how everyone should position their savings.
The purpose of your HYSA. Your high-yield savings account can serve many purposes, the chief among them being as an emergency fund.
YouTubing vs. Your Job
From there, you can use it as an investment portal, home maintenance fund, or a money market account to hold money between trades.
Once you start seeing interest accumulate in your HYSA, you will feel the power of compounding. Hopefully, this feeling pushes you to different investments.
Certificates of deposit are the step. Once you have your Tier 1 ($1,000) and Tier 2 ($10,000) emergency funds, it’s time to seek more yield.
Make Your Primary Residence Your Retirement Plan
We can stay with the bank but purchase certificates of deposit. With CDs, you lock our money with the bank for a specified time for a specified yield.
The interest rates on CDs are mostly higher than a high-yield savings account, but you have limited access. It’s a give-and-take. That’s why having a Tier 2 emergency fund is vital to prevent you from withdrawing from your CD.
You can create a CD ladder by purchasing different CDs at various intervals. When one matures, you can reinvest the cash into higher-yielding securities.
The final stop is Series “I” Bonds. The last stop in our savings portfolio is Series “I” Bonds from the US Treasury.
These fantastic instruments have similar yields to CDs but last for 30 years. More importantly, they offer inflation protection by adjusting their yield every six months.
Overcoming Depression through Progression
There isn’t much penalty if you withdraw your bonds early, so there isn’t a significant holding risk over time. However, you want to keep them growing and compounding for the best effect.
You can stop here if you’d like. You never have to move past this stage in your saving career. Currently, the yields are decent. You will be good to go if you can budget your way out of inflation.
I do have a word of caution. Today, you are earning 3-6% on HYSAs, CDs, and Series “I” bonds, but this WILL NOT always be the case.
When the federal reserve drops rates to 0% again, you’ll be stuck with 1-3% yields. You will then need to seek products in the capital markets (stocks and bonds).
Mortgage-Backed Securities vs. Treasury Bonds
So enjoy your safe cash flow now, but slowly prepare to take on a little more risk. Building this stage is more than most Americans, so pat yourself on the back. Just don’t get too comfortable.
How to position your portfolio. Now that you are interested in HYSAs, CDs, and Series “I” bonds, how do you allocate between them?
It depends on how you visualize your money. I don’t need to keep much cash in my HYSA (I have roughly $6,000) because I can use leverage during an emergency.
For example, if I have a $3,000 emergency, I can cover that with cash flow. I can use a credit card or leverage against a brokerage account to quickly fund the emergency.
Retirement Planning with Index Funds
Then I can use cash flow to pay back this loan. So people prefer to use their HYSA for everything. You must determine how you want to utilize your capital for emergencies.
Once you have a strategy, you can send your cash into CDs and Series “I” bonds. You may keep 80% in an HYSA and 10% across the other two.
Another option is 20% in an HYSA, 60% in CDs, and 20% in Series “I” Bonds. The good part is that you can adjust your style based on your lifestyle changes.
To Become Rich, You’ll Need Leverage
Conclusion. I know it is difficult to trust in high-yield savings, certificates of deposit, and Series “I” bonds; however, it is the first step to investing.
We have many more investing rabbit holes to travel, so start looking into these now. Saving and investing are two of the most fun things to do in life.
Take the Difficult Path to Reach Happiness
Money wants to grow. It wants to help us defeat inflation, increase our wealth, and leave a nest egg to our children. However, if we stuff it under a mattress or a standard savings account, money can’t work as it wants.
The world is scary, and only those who can think critically will thrive. Saving is the beginning stage of becoming a great middle-class investor. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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