In terms of what is this money for, it will likely be for a couple of things. I plan to start a family within the coming years and it will be money that will allow me to take time off work either in whole or to reduce hours to part-time for the first year. After that, the remainder will likely be divided into a $10k emergency fund and then the rest can go into more the of Long Term Stash category.
My issue with the stock market is that I want the money to be relatively risk free and liquid for potential family beginning needs over the next couple years. I guess my primary issue is that I remember all too well when getting 5% at the bank in a high yield account was really very realistic (within the last 5 years) so it seems that should be something that may come back into play in the future without having to deal with potentially very large dips in the stock market for such a short term investment period.
Thank you also for the other replies since this post as well. I'm listening to each contribution carefully and taking it all in! I very much value each advice!!
OK, so 10k is the emergency fund. That will be there now, when you're taking time out to start a family, and afterwards as well. So best think of that as a separate amount. It's fine where it is right now. No need to worry about returns, it's only job is to be there when you need it. You're exposed to inflation risk there, but you get around that by checking it against your spending from time to time and adding to it if needed.
So you're left with 40k, and it sounds like you've got a 3-5 year horizon, maybe a bit less? The question is, how much money do you need to be out of work for a year, with your current spending plus a new baby plus possibly health insurance? You'll know the amount, but let's assume it's the whole 40k. You don't want to risk going below that.
But you've also got the money you can put away between now and then. With 50k after tax already built up, and the house paid off, I'm assuming you'll have more coming in. Let's assume 10k per year. If that's the case, then worst-case you could lose 10k a year and still be able to meet your goal. No sense risking anything near that of course, but my point is you have more than see in your balance. Adjust that by how secure you are in your job and earnings, of course.
So, with such a short time horizon you wouldn't want to put it all in stock, of course. You could easily see a 50% drop in a stock index in that time, or more. But that doesn't mean you can't put some in stock.
I'd take a look at Vanguard's LifeStrategy Income Fund (
VASIX). This is a low cost index fund (ER 0.14%) made up of 80% bond indexes and 20% stock indexes. It's purpose is for investing in 3-5 year horizons. Trailing returns put it around 5%. You might end up with a loss as well, but it's unlikely to be more than a couple of percent*. And using the assumptions here, that wouldn't come close to endangering your goals.
If you want to completely avoid loss, you could invest in individual CDs. Since you'd be buying them yourself and holding them to term, you could be sure of your return on each. It wouldn't be much, but it would be better than the 1.25%. But it's more work and management to keep the CDs started and re-invested. For my money, I'd just go with the Vanguard fund. Think of it as a higher return savings account that sometimes loses a bit of money, but not a lot. Then as you get closer to starting that family, start pulling it out, or just let the incoming savings from your job build up.
* UPDATE - OK, looking over the historical returns for that fund, I see that in 2008, during the biggest crisis in recent memory, it dropped 12% in a month. So, "a couple" isn't a good thing for me to say. It's still unlikely that another 2008 will happen in the next 3-5 years, but you should be able to handle it if it does. And using these assumptions, you would be. For a compromise between this risk and the CDs, you could go directly to Vanguard's Total Bond Market (
VBTLX). That's the main holding of the LifeStrategy Income fund, you'd just be leaving out the stocks and international exposure. Drops the ER to 0.08%, too because it's an "Admiralty" share fund with a $10k minimum.