Creating a special fund to handle emergencies is the best way to start any investing journey. Everyone has emergencies: A just-in-case fund can reduce stress and prevent you from going into debt if your car suddenly breaks down, your roof needs repair or you simply need to make ends meet when you have a slow couple of months.
Professionals typically recommend that you build up three to six months’ living expenses for emergencies. Anything more than that should be invested for other goals, such as retirement.
Put it in the budget
You don’t need a huge lump sum to start an emergency fund: You can start by just finding a few dollars every month. Set a monthly target and put it right in your budget. Even if you can only free up $25 each pay period, it will add up.
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Select a Homestead Funds account
There are many types of investment accounts. For an emergency fund, the best choice is typically an individual or jointly owned taxable account. Investment accounts aren’t guaranteed the way bank accounts are, but they might provide comparable or possibly better rates of return. Your savings can grow even faster when you earn investment returns on the money you set aside.
Account types appropriate for this goal:
Choose your investment type
It’s important to select investment types that align with your investment goals and time horizon. Equities carry a higher degree of risk (meaning they are more volatile), but histrionically have delivered higher long-term returns. As time goes on, you’ll want to consider an asset mix with fewer equities and more fixed-income funds. Homestead Funds offers funds across these categories to help meet your investment needs.
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Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. government securities can decrease due to, among other factors, changes in interest rates or changes to the financial condition or credit rating of the U.S. government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated securities involve greater risk than higher-rated securities.
Equity securities generally have greater price volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally.
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Once you’re ready, start here.
The sooner you begin investing, the more time you have to reach your goal.
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