How Fast Can I Get My Money Out of the Market?

Dear Carrie,

If I invest my savings in the stock market, how fast can I get cash if I need it quickly?

—A Reader

Dear Reader,

Thanks for asking this because what seems like a fairly straightforward question opens the door to a whole lot more discussion. The timing rules for selling stocks and getting the cash are pretty clear and I'll go over those for you. But what I'd like to emphasize is the importance of deciding upfront how much money to keep easily accessible and how much to invest.

Much of that decision depends on your goals because the way you should save and prepare for short-term needs is very different from how you should prepare for long-term goals. And it's the money you earmark for long-term goals that is most appropriate for the stock market.

But before we get into that, let me first answer your specific question.

How quickly you can get your cash when you sell an investment

When you buy or sell securities, the official transfer of the securities to the buyer's account or the cash to the seller's account is called "settlement." For most stock trades, settlement happens two business days after the trade is executed. An easy and common way to remember this is T+2, which stands for trade date plus an additional two days. For example, if your sell order executes on Monday, you'd have your cash available by Wednesday.

However, the T+2 rule applies only to trades of individual stocks, bonds and exchange traded funds (ETFs). If you own mutual funds, the timing is different. Mutual fund trades typically settle the next business day, so it's possible you could get your money as soon as the day after you sell. Money market mutual funds are even faster; they settle on the same day the trade is executed. As you can see, the time it takes to get your cash depends in part on what type of investments you hold.

But no matter what type of investment you sell, be aware that if you transfer your money from one account to another, say from a brokerage account to a bank checking account, it could take a another few days for the electronic funds transfer to be completed.

What to do before you get into the market

Settlement details aside, it's essential to think through your personal situation and different goals before you invest in the stock market. Here's what I suggest:

• Make retirement a priority—If you're saving for retirement or another long-term goal, investing in the stock market is completely appropriate but it’s important to consider how much risk and volatility you can withstand along the way. So you have to think long term (5-10+ years) to give yourself a better chance of riding out the inevitable dips. Otherwise, you could get caught needing to sell at the wrong time and sustain a substantial loss. Always start by contributing enough to your 401(k) to get the full match from your employer, if offered.
• Save money for emergencies—Make sure you have an adequate rainy day fund. You never know what might happen. Aim to put away enough money to cover three to six months’ of necessary expenses (rent, utilities, food, medical, insurance) in a savings or money market account. That way, if something bad happens such as a layoff, car repair or health problem, you can get to your money immediately.
• Stop giving so much to credit card companies—The stock market has virtually unlimited upside but it’s not a smooth ride and there are no guarantees. Paying down high interest consumer debt is a sure way to improve your financial picture. Take a hard look at your debt situation before investing in the stock market.
• Think about additional savings for short-term goals—What money might you need in the next 3-5 years? For instance, are you saving for a vacation or a down payment on a house you hope to buy in the near future? Depending on your specific time frame you could put that money in money market accounts, short-term CDs or even short-term bonds—something easily accessible and secure.

Don’t set it and forget it after you invest

It may seem counter-intuitive, but there can also be situations where you might be keeping your money in the stock market too long. And that goes back to the idea of time frame. For instance, a parent saving for a child's education should probably start shifting the money out of stocks and into more conservative investments like bonds or cash the closer the student gets to college. Again, it's not a question of how quickly you can get the cash out but rather getting the cash out without a loss. You don't want to take too much risk with money you'll need sooner rather than later.

Don't wait to get started

Your seemingly simple question about the time it takes to get your money out of the market has triggered a lot of other considerations. And one of the most important timing considerations of all is just to get started. To me, investing in stocks is one of the best ways to grow your long-term savings. Which brings me to one of the classic sayings about investing: "Time in the market is more important than timing the market." And if you're young and just getting started, time may be your greatest asset.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.