What money should NOT be invested?

The stock market can fluctuate quite a bit. There are occasionally going to be times when the market takes a temporary tumble. Sometimes that tumble might be short-lived and recover in a couple of months, other times it can take several years to fully recover. 

When it comes to low-risk investing, the absolute worst thing you can do is pull your money out when the prices are down. If you take money out when prices are low, you’ll be selling your investments for a discount. That’s why it’s better to wait (which is easier said than done) until the prices have recovered to take your money out so you can get the full price when you sell. 

Since the market tends to fluctuate and tumble occasionally, there are scenarios when keeping your money in a savings account is actually better than investing. Let’s say you’re setting aside money that you plan to use to buy a house next year. If the stock market takes a temporary tumble, and you have to sell some of your investments to get money for a downpayment, you would be forced to sell them at a much lower price than what you could sell them for if you were able to wait until the market recovered. And with such a short investing horizon, there’s a chance you might even have to sell them for less than what you paid. 

Due to the up and down nature of the stock market it’s typically recommended to only invest money that you won’t need to access for at least 2-3 years, but ideally 5+ years, so you can wait out and tumbles and get the most out of your money.