Making Over Janet

Since she needs some emergency reserve, she is probably best off by keeping the money in her savings account (even though she is paying 4.875 percent after-tax and earning 3.25 percent after-tax).

If Janet is comfortable with the long-term risk associated with investing in equities and she has other sources for an emergency reserve, she would expect to earn significantly more money on the $10,000 by investing in a low-expense S&P 500 stock index fund.

One final reminder — it's not always about earning the highest return available. It's good to keep a liquidity reserve of say three-six months living expenses in a highly liquid savings or money market account. Fewer months if you are in a secure job or industry or if you have other resources, closer to six months if you don't.

Guest columnist Kacy Gott, CFP, is president-elect of the Financial Planning Association of San Francisco ( and a principal with Kochis Fitz, a wealth management firm in San Francisco, Calif. ( He's also an instructor in the Personal Financial Planning program at U.C. Berkeley extension.

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