I am a independent contractor - no benefits a typical employee would get like healthcare/401k. That also means my income spikes up and down. It’s common in my industry to go 6-9 months with no income in between gig’s.
Because I cannot depend on a steady stream of income, and I am the sole supporter for my family of 4, I keep an emergency fund that is larger than most keep - about 12 months worth of living expenses. Historically I have kept that money in a nice/safe Money Market (currently earning a paltry 1.25%). I would like to move a good chunk of this money to something that can do better than that without too much risk, and stay fairly liquid. My initial thought was to move about 50-75% of it into a nice proven mutual fund like a Vanguard index, keeping the rest in the money market. I would be very happy earning around 5% in a conservative growth/income type investment. Thoughts?
- Beat money market rates by at least double - let’s say a minimum of 3% return
- Low risk
- Low maintenance - I don’t have time to monitor it and chase for reallocating
- Need to be able to make small draws over time, let’s say 10% of the total per year
- Can be 100% liquidated in 3-5 business days (this rules out CDs)
So really it’s 2 questions…
- Where to invest? Investment bonds?
- How much of the total emergency fund to allocate to it, vs. the money market?
30% money market (draws would come from this first)
50% investment bonds
20% conservative mutual fund