Before you invest
How much should you invest?
Not all your money belongs in the market. Here’s a simple order of operations — work through it once, and you’ll know exactly what’s right for Watermelon.
This is general information, not personal financial advice. Everyone’s situation is different.
Get these two right first
1
Your emergency fund, first
Most guidance points to around three months of everyday expenses, sitting somewhere easy to reach. It's what covers a surprise bill or a gap between jobs without reaching for a credit card.
Source: MoneySmart — Save for an emergency fund↗2
Anything you need within 5 years
A house deposit, a car, a wedding, a trip — if you'll need the money for something specific within about five years, keep it out of the market too. A bad year in shares colliding with moving day is not a risk worth taking.
Source: MoneySmart — Choose your investments↗Then: invest according to when you’ll need it
Once the first two are sorted, ask yourself one question: when will you actually need this money?
Less than 5 years
A high-interest savings account or term deposit is generally the better home for it — a predictable return with no market risk. Term deposits lock your money away for a fixed term, with a penalty if you need it out early.
Source: MoneySmart — Term deposits↗Saving for retirement (65+)
If it won't be touched until you're 65 or older, superannuation is usually the more tax-effective home for it — contributions and earnings inside super are taxed at up to 15%, often well below your regular income tax rate.
Source: MoneySmart — Tax and super↗5+ years, not for retirement
This is exactly what Watermelon is built for — money you won't touch for at least five years, that isn't already earmarked for something specific.
Why the 5-year rule
Why investing — for long enough — beats a savings account.
1
Compounding, without the annual tax bite
With a savings account or term deposit, the interest you earn is paid out as income each year — and taxed as income, whether you touch it or not. With an investment, growth simply stays invested; it isn't taxed until you actually sell. Over long enough periods, that difference compounds.
2
It's less liquid, on purpose
Getting money out of an investment takes a little longer than a bank transfer — it has to be sold first. That's the trade-off for the better long-term return, and exactly why this isn't the place for money you might need next month.
3
Time smooths out the bumps
Markets rise and fall in the short term, sometimes sharply. The longer you stay invested, the less any single crash or boom matters to your overall result — five years or more gives your money room to ride out a downturn instead of locking in a loss.
The Australian and US markets don’t move in lockstep — you can see how that blend works on our investment, fees & taxes page. Some years will be down years. Time is what makes that trade worth it.