The Three Fundamental Accounts
You should be aware of three fundamental investment accounts you should have.
• Short Term
• Long Term
Emergency Account: This is for when, not if, events in your life come up you didn't plan for. 3 to 6 months is a safe amount to have in low to no risk investment. And it should be easily available like a money market account with a checkbook option.
Short Term Account: We all want new cars or family vacations to exotic locations and that's what this account is for. Set a goal 3 to 5 years out and begin to save here. Perhaps investing in an equity and income mutual fund.
Long Term Account: This is your retirement or college education for you kid’s account. Depending on what kind of investor you are, this is where you want to have more equity then income investments.
What's most important to remember is that if you have all of these accounts you should not have to worry about emergency’s getting you into debt. And, when you need to make those big purchases you're not dipping into your future retirement.
(You should talk with a specialist about your risk tolerance before making any investment decision.)