How to split your savings between safety, yield and the long term

In short:

1. An emergency fund is sized in months of spending, not as a percentage of net worth.
2. Every euro must be matched to a horizon before it is matched to an investment.
3. A long-term investment funded with money needed in two years almost always ends in a sale at the wrong moment.
4. The split is revised when your situation changes, not when markets move.

Sort by horizon, not by product

The most common question is “what should I invest in”. That is the second question. The first is when you will need the money. It determines the acceptable level of risk, and therefore the possible supports.

The most robust method splits savings into three distinct pockets.

Pocket 1: the emergency fund

Purpose: absorb the unexpected without ever having to sell an investment at the wrong moment.

It is sized in months of ordinary spending, generally three to six months for an employee in a stable job, more for a self-employed or irregular income. It stays in fully liquid supports with no risk of loss, such as regulated savings accounts. Its return is not the point: its job is to exist and be available within 24 hours.

Pocket 2: medium-term projects

Purpose: fund what is identified three to eight years out, a property deposit, a vehicle, children’s studies.

Risk must stay measured, since the date is known and close. Euro funds, cautious bond supports or a balanced allocation, with gradual securing as the deadline approaches.

Pocket 3: the long term

Purpose: grow capital over more than eight years, with no compulsory exit date.

This is the only pocket where exposure to equities, property funds or private markets makes sense, because the duration absorbs the cycles. It is also the only one where the illiquidity of a private equity fund becomes acceptable.

The mistake that costs the most

Investing in equities money that is needed in two years. Statistically the market recovers; the problem is that it does not necessarily recover before the date you have to sell. The loss then comes not from the investment but from the mismatch between the real horizon and the support chosen.

Frequently asked questions

How should you split your savings across investments?

By first sorting the money by horizon, into three pockets. An emergency pocket worth three to six months of spending, in fully liquid accounts. A projects pocket, for what will be spent in three to eight years, in measured-risk supports. A long-term pocket, beyond eight years, the only one that justifies significant exposure to equities, property funds or private markets.

How much should you keep as an emergency fund?

Three to six months of ordinary spending for an employee in a stable job, more for a self-employed or irregular income. The amount is calculated in months of spending rather than as a share of net worth, since its purpose is to cover an unexpected event whose cost does not depend on the size of your savings.

Should you change your allocation when markets fall?

No, unless your personal situation has changed. An allocation built on horizons stays valid when markets fluctuate, since those horizons have not moved. Changing the allocation in reaction to a fall usually turns a temporary loss into a permanent one.