“I want to be relatively risk free…and they scare me.” Is paying off my house early a good, risk free option or are there better uses of my money? How can I make a smart financial decision without stress?

Hi Money Minder,

I’ve recently started saving up in a High Yield Savings Account (HYSA) to build up my nest egg. But now, I’m concerned about the high APY of 5.1% coming to an end with the Fed lowering interest rates. Plus, the fact that any money I make with this rate will be taxed makes me rethink the benefits.

My home mortgage has a relatively low 3.25% interest rate. I’ve heard that it’s better to invest money if you can guarantee a return higher than this rate. However, I’m risk-averse and unsure about other options apart from my HYSA. Should I focus on maxing out my 401k instead of paying off my mortgage? Is there a safe investment I can consider, given my limited knowledge and fear of investments?

Basically, if you had extra money coming in and wanted to play it safe, what would you do? I don’t want to stress about the stock market and prefer to keep my HYSA for emergencies. But now, with more options available, I’m unsure about the best approach.

Your advice on how to handle excess money without taking on too much risk would be greatly appreciated!

Farewell,
[Made up Name]

Response from THE MONEY MINDER:

Hello There,

Congratulations on taking the proactive step of opening a High Yield Savings Account (HYSA) to grow your nest egg. It’s commendable that you are looking ahead and considering your financial options. It’s understandable to have concerns about the potential decrease in the APY as the Fed lowers interest rates and the impact of taxes on your earnings.

Given your low mortgage interest rate of 3.25 percent, it’s wise to explore alternative ways to make the most of your money. While investing can offer higher returns, it also comes with risks, which might not align with your risk-averse approach. Maxing out your 401k could be a good option as it offers tax advantages and employer contributions, providing a secure way to grow your retirement savings.

If you are hesitant about investing, you could consider other low-risk options such as Treasury bonds or certificates of deposit (CDs). These investments generally offer modest returns with minimal risk, providing a stable way to grow your money over time. Diversifying your investments among different asset classes can also help mitigate risks and ensure a balanced financial portfolio.

Ultimately, the best approach will depend on your financial goals, risk tolerance, and time horizon. It might be helpful to consult with a financial advisor who can provide personalized guidance based on your specific circumstances. Remember that financial decisions should align with your long-term objectives and provide peace of mind for your future financial security.

All the best from THE MONEY MINDER as you navigate your financial journey and make informed decisions to safeguard your financial well-being.