The 5 year Rule!

I like to inspire people to plan for retirement. In the end none of us want to get to retirement with no funds and needing to work. I never plan to retire, but that’s because I enjoy working and not because I have to work. So please plan for your retirement. However, what about investing in mutual funds in a non-retirement account? Here are my guidelines for that.

Do not invest any money in mutual funds you are not willing to leave in the market at least 5 years. Even though I trust the market, there are years where the market is down. In fact the reason I say 5 years is because the odds are in your favor. In about 85% of any rolling 5 year periods in the stock market it has made money. Those are good odds. However, the longer you leave the money in the more the percentages go up. In about 90% of any ten year period the market has made money.

If you had a good year like 2019 where the market grew by 30% and you want to take money out of a non-retirement account, make sure it has been in the market a year and a day. If you take out the money in less than a year, you pay your income tax rate for capital gains up to 37%.

However, if you keep it beyond a year your long term capital gains rate can be either 0%, 15%, or 20% depending on your tax bracket.

If you want to read more about it do so in this article Understanding long term vs short term capital gains rate

There are good reasons to use a non-retirement account mutual fund, if you can leave the money there at least 5 years. I have seen friends use a non-retirement mutual fund for the following five reasons.

  1. For a car replacement fund when planning to get newer cars in about 7 years.

  2. When saving for a house down payment in the future.

  3. Just for extra savings

  4. To help with a major purchase in the future

  5. As a method to keep from spending too much money. It‘s hard to spend money if you have to go through the hassle of getting it out of the market.

For what reasons have you heard of others investing in non-retirement accounts?

If you have questions don’t hesitate to ask here. Take charge of your money!

Your biggest cheerleader on social media,

Gio Marin

P.S. Day 302 please pray for the 7.2 million goal for 2020


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