3 signs you’re putting money into a brokerage account that doesn’t belong there

You can invest by putting money in a brokerage account. Investing is a good thing because you can grow your wealth much faster by taking advantage of compound growth. This happens when profits are reinvested to earn more.

But there are situations where it makes money. ~ no In general, despite the benefits of investing in a brokerage account, they belong to a brokerage account. In fact, here are some key signs that show your money is going into your brokerage account when it really shouldn’t:

1. You can’t afford to lose money.

The biggest red flag that suggests you shouldn’t have any money in your brokerage account is if you absolutely can’t afford to lose it.

The reality is that almost all investments involve some degree of risk. If you have money that’s absolutely critical, like a down payment on a house you’re buying next month, that money can’t be in the stock market. It should be safely stored in an FDIC-insured bank account, and you can’t run the risk of losing it or not getting the home you wanted to buy.

Before investing, consider what would happen if: did You suffer a loss. Can you recover within a reasonable period of time? Or could underperforming investments be destroying your overall personal finances? If it’s the former, you can put your money in a brokerage account. If it’s the latter, you shouldn’t do it.

2. You may need money in the next two years or so.

One of the best ways to reduce the risk associated with investing is to keep the money you invest for the long term. There are several reasons for this.

First of all, if you invest for the long term, you don’t have to worry about timing your stock purchases at the perfect moment. Rather than buying stocks when prices are temporarily down and hoping you’ll be lucky enough to sell them at a profit soon, you can let time help your money grow.

Most people aren’t good at predicting exactly when a company’s stock price will change (for better or worse), so it’s best to only invest if you can keep your money in the market for at least two years (often five years or more is a good number). Even the largest investments can suffer temporary losses due to external factors, such as economic downturns.

A quick look at this chart showing the performance of the S&P 500 shows how important long-term investing is. The S&P 500 is a financial index that aims to track the performance of the 500 largest American companies. Although it has a consistent track record of averaging 10% annual returns, it doesn’t come close to that level every year.

Data source: Macrotrends.

If you keep your money invested for at least five years and choose the right investments in solid companies or financial indices with a proven track record, you are likely to make a profit in the end. However, you cannot take the opportunity to invest the money you need in the next 1-2 years, and due to poor timing, you will find yourself in a situation where you have to sell at a huge loss.

3. You have not yet reached your maximum employer match.

Finally, if you’re not invested enough in your company’s retirement plan to match your employer’s, your money doesn’t belong in your brokerage account. This is a contribution that many employers make to match their employees’ 401(k) contributions. However, to get a full match you will need to invest a certain amount of your own money.

For example, if your employer offers a 100% match on up to 3% of your income, and you earn $50,000, the company will deposit up to $1,500 into your retirement account.

If you’re not investing the amount you need to get the full match at work, you should do so before investing in a brokerage account because you don’t want to miss out on free money. Contact your HR or plan administrator right away to increase your contributions before you give up more free cash.

If you notice any of these red flags, you should switch to depositing your money in a 401(k) or savings account instead of a brokerage account as soon as possible. If you have money you can afford to lose, your investment horizon is long enough, and you’ve secured all the 401(k) matching funds you can get from your employer, you can use your brokerage account again.

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