Investment time horizon: When is it acceptable to withdraw money from investments?
"shouldn't withdraw stock investments for at least 5 years would be better re-phrased as: ""don't invest money in stocks if you (really) need it within next few years"". The underlying principle is: stocks are one of the higher-risk investment classes out there.  While that's exactly what you want over a long time horizon (longer than the ebb and flow of the broader economy); if you know you'll definitely have to withdraw $50k (or any large chunk) of it within just a few years, it's possible that a great long-term vehicle like stocks, could actually rob you of money on a shorter time horizon. So if you want to start a business 2 years from now, you'll probably want to retain some of that $300k initial pile in lower-risk investment vehicles (e.g. bonds, CDs, certain ETFs and mutual funds aimed at ""capital preservation"", etc). That said, interest rates are so low, that if you're flexible with how much money you'll need to start that business, I'd probably keep as much as you can stomach in diversified stocks (per your original plan)." "To summarize your starting situation: You want to: Possible paths: No small business Get a job. Invest the 300K in safe liquid investments then move the maximum amount each year into your retirement accounts. Depending on which company you work for that could include 401K (Regular or Roth), deductible IRA, Roth IRA. The amount of money you can transfer is a function of the options they give you, how much they match, and the amount of income you earn. For the 401K you will invest from your paycheck, but pull an equal amount from the remainder of the 300K. If you are married you can use the same procedure for your spouse's account. You current income funds any vacations or splurges, because you will not need to put additional funds into your retirement plan. By your late 30's the 300K will now be fully invested in retirement account. Unfortunately you can't touch much of it without paying penalties until you are closer to age 60. Each year before semi-retirement, you will have to invest some of your salary into non-retirement accounts to cushion you between age 40 and age 60. Invest/start a business: Take a chunk of the  300K, and decide that in X years you will use it to start a small business. This chunk of money must be liquid and invested safely so that you can use it when you want to. You also don't want to invest it in investments that have a risk of loss. Take the remaining funds and invest it as described in the no small business section. You will completely convert funds to retirement funds earlier because of a smaller starting amount. Hopefully the small business creates enough income to allow you to continue to fund retirement or semi-retirement. But it might not. Comment regarding 5 year ""rules"": Roth IRA: you have to remain invested in the Roth IRA for 5 years otherwise your withdrawal is penalized. Investing in stocks: If your time horizon is short, then stocks are too volatile. If it drops just before you need the money, it might not recover in time. Final Advice: Get a financial adviser that will lay out a complete plan for a fixed fee. They will discuss investment options, types not particular funds. They will also explain the tax implications of investing in various retirement accounts, and how that will impact your semi-retirement plans. Review the plan every few years as tax laws change."
The Trinity study looked at 'safe' withdrawal rates from retirement portfolios. They found it was safe to withdraw 4% of a portfolio consisting of stocks and bonds. I cannot immediately find exactly what specific investment allocations they used, but note that they found a portfolio consisting largely of stocks would allow for the withdrawal of 3% - 4% and still keep up with inflation. In this case, if you are able to fund $30,000, the study claims it would be safe to withdraw $900 - $1200 a year (that is, pay out as scholarships) while allowing the scholarship to grow sufficiently to cover inflation, and that this should work in perpetuity. My guess is that they invest such scholarship funds in a fairly aggressive portfolio. Most likely, they choose something along these lines: 70 - 80% stocks and 20 - 30% bonds. This is probably more risky than you'd want to take, but should give higher returns than a more conservative portfolio of perhaps 50 - 60% stocks, 40 - 50% bonds, over the long term. Just a regular, interest-bearing savings account isn't going to be enough. They almost never even keep up with inflation. Yes, if the stock market or the bond market takes a hit, the investment will suffer. But over the long term, it should more than recover the lost capital. Such scholarships care far more about the very long term and can weather a few years of bad returns. This is roughly similar to retirement planning. If you expect to be retired for, say, 10 years, you won't worry too much about pulling out your retirement funds. But it's quite possible to retire early (say, at 40) and plan for an infinite retirement. You just need a lot more money to do so. $3 million, invested appropriately, should allow you to pull out approximately $90,000 a year (adjusted upward for inflation) forever. I leave the specifics of how to come up with $3 million as an exercise for the reader. :) As an aside, there's a Memorial and Traffic Safety Fund which (kindly and gently) solicited a $10,000 donation after my wife was killed in a motor vehicle accident. That would have provided annual donations in her name, in perpetuity. This shows you don't need $30,000 to set up a scholarship or a fund. I chose to go another way, but it was an option I seriously considered. Edit: The Trinity study actually only looked at a 30 year withdrawal period. So long as the investment wasn't exhausted within 30 years, it was considered a success. The Trinity study has also been criticised when it comes to retirement. Nevertheless, there's some withdrawal rate at which point your investment is expected to last forever. It just may be slightly smaller than 3-4% per year. "The answers so far are excellent. I need to respond to your 8-9% withdrawal rate. Uh, wherever you heard that, I'd suggest you listen/read elsewhere. 4% seems to be the ""safe"" withdrawal rate. I've seen people who were convinced that 7-10% were ok get absolutely trashed in the downturns, both 2000 and 2008. Proper asset allocation and low withdrawal rate will help avoid disaster. I wrote an article about the assumptions we make, looking at 1980-2000 and extrapolating from there. Not pretty. In 2000, I remarked that the near 20%/yr couldn't continue. Understatement of my life. I expected a return to normalcy, maybe 8-10%/yr, and got zero." There is no rule of thumb (although some may suggest there is). Everybody will have different goals, investment preferences and risk tolerances. You need to figure this out by yourself by either education yourself in the type of investments you are interested in or by engaging (and paying for) a financial advisor. You should not be taking advice from others unless it is specifically geared for your goals, investment DNA and risk tolerance. The only advice I would give you is to have a plan (whether you develop it yourself or pay a financial advisor to develop one). Also, don't have all your savings sitting in cash, as long-term you will fall behind the eight ball in real returns (allowing for inflation). Use TWIRR (aka TWRR). Time Weighted rate of return. It's sort of the opposite of XIRR. XIRR results change dramatically depending on the timing of the cashflows. It might be useful to also model returns that are unaffected by the timing. This is how funds report returns, and this number allows you to compare to funds and indices. During periods of steady deposits, XIRR will continually understate performance. And in retirement, when you have steady withdrawals, XIRR will overstate. TWRR is talked about here: http://www.dailyvest.com/PRR/prr_calcmethods.aspx#twrr I've made a simple spreadsheet that you can use as a starting point, if you like: http://moosiefinance.com/static/models/spreadsheets.html (top entry in the list) "Your decision about which of these investments to make is going to depend on how long you expect to leave the money in the account. For example, based on the figures you give us, if you think you are going to want to withdraw the money in three months or less then you should chose the savings account.  For ten months or more you should choose the Fixed Deposit. (As Michael Kjorling says, ""flexible to withdraw at any time"" does not mean you won't pay penalties for withdrawing early that's why you shouldn't choose the longer term deposits if you want to withdraw earlier). That's the simplest approach. The trouble of course is that you don't necessarily know how long you are going to leave the money in. If you are saving for a house, and you know you won't want to buy in the next year, the 12 month deposit looks good. But what if your car suddenly needs repairs? You would have to withdraw that money early and pay the penalties, and it turns out you would have been better of putting it in the savings account. A good approach is:" What you choose to invest in depends largely on your own goals and time horizon.  You state that your time horizon is a few decades. Most studies have shown that the equity market as a whole has outperformed most other asset types (except perhaps property in some cases) over the long term.  The reason that time horizon is important is that equities are quite volatile. Who knows whether your value will halve in the next year? But we hope that over the longer term, things come out in the wash, and tomorrow's market crash will recover, etc.  However, you must realize that if your goals change, and you suddenly need your money after 2 years, it might be worth less in two years than you expect. The rules are quite different.  There is no special home purchase penalty-free withdrawal.  In the case that your account has been open for five years, you can withdraw the principal (but not the earnings) without penalty.  You may want to talk to a professional for further details. The real question is: why do you want to borrow against your future to finance your present?  Your down payment funds should come from another source than your retirement.  Retirement funds should only be touched in the direst financial straights. I would like to add to the answer provided by Dheer. I think under some ULIPs you need not pay premium after 3 years and you can take the money back after 5 years (something like that, read your policy statement of course). Since the money is invested in Stock markets and since generally people say the longer money stays in stocks, the better; you can keep the money with them without taking it back and without paying any further premium. That way, whatever you paid will be invested and you can get it back later when you feel you will make a profit. "In your example, you said if someone calls for a 75% decline in the market next year, and instead it happens in 3 years, it's still a good call in your book. This is what I, and I believe mjvcaj, disagree with.   Without a time frame, or an incorrect time frame, you're essentially just making a blanket statement and hoping for the best. Otherwise anyone can ""predict"" what's going to happen, as long as you're vague about the details." For me the aggressive approach makes sense since I have a longer time horizon before I need to withdraw the funds.  This style should also match your personality and you should have the patience and appetite to deal with market fluctuations which can be wild in some cases (as we saw in 2008-2009).  Not an easy question to answer since everyone's situation is different and everyone has to make their own decisions. For a time period as short as a matter of months, commercial paper or bonds about to mature are the highest returning investments, as defined by Benjamin Graham:  An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. There are no well-known methods that can be applied to cryptocurrencies or forex for such short time periods to promise safety of principal. The problem is that with $1,500, it will be impossible to buy any worthy credit directly and hold to maturity; besides, the need for liquidity eats up the return, risk-adjusted.  The only alternative is a bond ETF which has a high probability of getting crushed as interest rates continue to rise, so that fails the above criteria. The only alternative for investment now is a short term deposit with a bank. For speculation, anything goes... The best strategy is to take the money and continue to build up a financial structure: saving for risk-adjusted and time-discounted future annual cash flows.  After the average unemployment cycle is funded, approximately six or so years, then long-term investments should be accumulated, internationally diversified equities. Yes you will be able to withdraw the money upon maturity. The PPF account cannot be extended. Under the liberalized remittance scheme an individual can repatriate back up to 1 million USD. There is some paperwork and CA certificate required. A savings account is your best bet.   You do not have the time frame to mitigate/absorb risks.  The general guideline for investment is 5 years or more.  As you state you are no where near close to that time frame. "Remind yourself that markets recover, usually within a few years. If you believe this and can remind yourself of this, you will be able to see the down cycles of the market as an opportunity to buy stock ""on sale"". No one knows the future, so many people have found investing on a regular schedule to be helpful. By putting in the same amount of money each period, you will end up buying fewer shares when the market is up, and more when it is down. As long as your time horizon is appropriate, you should be able to wait out the ups and downs. Stocks are volatile by their very nature, so if you find that you are very concerned by this, you might want to consider whether you should adjust the amount of risk in your investments, since over time, most people lose money by trying to ""time"" the market. However, if your investment goals and requirements haven't changed, there likely isn't any need to change the types of assets you are investing in, as what you are choosing to invest in should depend on your personal situation. Edit: I am assuming you want to be a long-term investor and owner, making money by owning a portion of companies' profits, and not by trading stocks and/or speculation." I'm normally not a fan of partitioning investment money into buckets but your case may be the clearest case for it I've seen in awhile.  Your income and saving is good and you have two clearly defined goals of retirement saving and saving for a house each with very different time frames ~30 years and 3-5 years respectively. For medium term money, like saving for a house, just building up cash is not actually a bad idea. This minimizes the chance that a market crash will happen at the same time you need to withdraw the money.  However, given you have the means to take more risk a generally smarter scheme would be to invest much of the money in a broad liquid bond funds with a somewhat lower percentage in stocks and then reduce the amount of stock each year as you get closer even moving some into cash.  This gives reasonable positive expected return while lowering the risk of having to sell during a crisis as the time to purchase gets shorter and shorter. The retirement money should be invested for the long term as usual.  A majority in low-fee index stock funds/etfs is the standard advice for good reason.