How Much of Your Savings Should You Invest?

Your savings are the pillar of your financial foundation. However, as you build your financial plan, you will likely wonder: How much of my savings should I invest? This all depends on several factors, such as your financial needs, goals and risk tolerance. To help you determine how much of your savings you should invest, here we will explore different financial scenarios to help you find the number that is right for your personal needs.

A financial advisor can help you develop a financial plan based on your needs and goals.

How Much of My Savings Should I Invest?

Saving and investing for your future are crucial to a healthy financial plan. However, determining how much of your savings to invest varies based on your financial goals and risk tolerance.

Generally, saving makes sense to account for potential emergencies and build for expenses on the short-term horizon. Still, investing can sometimes make more sense for those with a higher risk tolerance or long-term investment horizon.

The choice between investing vs. saving is not always cut and dry. You also need to consider your risk tolerance, which only you can determine. Investors with a low risk tolerance tend to keep more cash on hand than investors with a high risk tolerance.

When to Save Money

These three financial scenarios demonstrate when it makes more sense to save money.

No emergency savings

If you do not have an emergency fund, you might be one unexpected expense away from financial hardship. It makes sense to prioritize saving if you do not have any emergency savings to fall back on. Many experts recommend stashing between three to six months’ worth of expenses in a high-yield savings account to rely on in hard times.

Major purchase looming

A big purchase on the horizon means you may be holding onto more cash than you normally would. Some examples of major savings goals include a home down payment or a replacement vehicle. If you need cash in a few years, saving money should be a priority.

Low risk tolerance

Investors with a low risk tolerance might not feel comfortable without a considerable cash cushion on hand. If that is what makes sticking to an investment plan possible for you, then saving for a specific cushion can make sense.

However, keep in mind that inflation will eat away at the purchasing power of your money. That means unless you invest your cash, you stand to lose purchasing power by putting into a savings account – or worse, sticking it under the mattress.

How to Calculate Your Emergency Fund Needs

An emergency fund is your financial safety net, but how much you need depends on your personal situation. While saving three to six months’ worth of essential expenses is recommended, you can fine-tune this number by considering your dependents, job security and health.

Start by calculating your average monthly essential expenses, which include:

Rent or mortgage
Utilities
Groceries
Transportation
Insurance premiums
Minimum debt payments
Healthcare
Other essentials (e.g., childcare)

If your job is stable and you are single with few obligations, you might aim for closer to three months of expenses. If you have dependents, work in a volatile industry or have health concerns, aim for six months or more.

Savings Example
If your essential expenses total $3,000/month and you want six months’ worth,
your emergency fund goal would be:
$3,000 × 6 = $18,000

Having this amount set aside ensures you can cover unexpected events — like job loss, medical emergencies or car repairs — without derailing your finances.

Where to Keep Savings vs. Investments

It is important to separate your short-term savings from your long-term investments, as each serves a different purpose and requires the right type of account.

Accounts for Savings

Focus: Accessibility and safety

High-yield savings accounts: High-yield savings accounts earn more interest than traditional savings while keeping your money liquid and FDIC-insured.
Money market accounts: Money market accounts are similar to savings accounts but typically offer higher rates with limited check-writing privileges.
Certificates of deposit (CDs): Certificates of deposit lock in a fixed rate for a set term, which is ideal if you will not need the money for a while.

These options are the best places for your emergency fund and near-term goals as they are low-risk and easy to access.

Investment Accounts

Focus: Growth over time

Brokerage accounts: Brokerage accounts are flexible, taxable accounts to invest in stocks, bonds, ETFs and mutual funds.
401(k) or IRA: Accounts, such as 401(k)s and IRAs, are tax-advantaged retirement accounts designed for long-term growth but with penalties for early withdrawals.

By keeping your savings in secure, liquid accounts and your investments in accounts designed for growth, you can effectively meet both your short-term needs, as well as your long-term goals.

When to Invest Money

These three financial scenarios illustrate when it may make more sense to invest your funds.

You have a long investment horizon. A long investment horizon means that you have a major expense that will take more than five years to save for, such as saving for retirement. It can take decades to save up for retirement, so it is important to put your cash to work through the proper investment vehicles.
You have an emergency fund. A fully-stocked emergency fund means you are ready to tackle whatever expenses life throws your way. With that cushion in place, you can focus on funneling your extra savings towards investments.
You do not have high-interest debt. High-interest debt is a drain on your finances, so in most cases, it makes sense to eliminate this debt before investing. After all, the interest rate on most credit cards is far higher than what you can typically earn through an investment opportunity.

Asset Allocation Strategies Based on Risk Tolerance

A clear asset allocation strategy can help you determine what percentage of cash to keep on hand. Your risk tolerance can help you determine how much to withhold from investing.

Very conservative. As a cautious investor focused on portfolio stability and the preservation of capital, you might keep 30% of your portfolio in cash.
Conservative. Conservative investors are willing to accept a modicum of risk. Generally, these investors keep up to 15% of their portfolio in cash.
Moderate. Moderate investors accept more risk and focus on diversification, leading to only 5% of the portfolio being allocated to cash.
Aggressive. Aggressive investors are focused on portfolio appreciation and typically only allocate 5% of their portfolio to cash.
Very aggressive. Very aggressive investors pursue above-average portfolio returns and allocate around 5% of their portfolio to cash.

SmartAsset’s Asset Allocation Calculator can help you determine the right allocation based on your risk tolerance and time horizon.

Bottom Line

A couple decide how much of their savings to invest.

At the end of the day, savers want to know one thing: how much of my savings should I invest? The amount of cash you should invest varies based on your goals and comfort level. If you have a low risk tolerance or big-ticket purchase on the horizon, then keeping more cash on hand makes sense. Investors with a higher risk tolerance or long time horizon can often stand to keep less cash on hand.

You can always ask a financial advisor about the right investments for your portfolio given your risk tolerance, time horizon and financial goals.

Tips on Investing

Building an investment portfolio is easier with the help of a qualified professional. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The right investment strategy sets you up for a bright financial future. But visualizing your portfolio’s potential growth can be easier said than done. Check out SmartAsset’s free investment calculator to see how much your money can grow.
Risk tolerance plays a big role in your appropriate asset allocation. As an investor, building a portfolio with asset allocations that align with your risk tolerance is essential. Explore your options with SmartAsset’s free asset allocation calculator.