In order to reach big financial goals—like having enough for a comfortable retirement—you’ve got to invest money on a regular basis as early as possible. But investing also means that you could possibly lose money.

The potential for investment risk creates a tension that keeps many people from getting started investing in the first place. Or they they may save money in an ultra-safe place, like a bank savings account, that only earns fraction of a percent each year.

I recently received a question from an anonymous Money Girl Podcast listener about this topic. She or he says, “I have about $20,000 sitting in a savings account losing value. I haven’t put it in an IRA because I’ve been worried that I’ll need the money. But I’m also worried that I’ve waited too long to start investing because I’m in my early 40s. If I go ahead and max out an IRA, how should I invest the rest?”

In this post I’ll answer the listener’s question with recommendations for how to invest money wisely. You’ll know exactly how much and where to put your money so you create financial security without taking too much risk.

What Money Should Be Invested?

There’s one rule of investing that you should always remember: Never expose your money to more risk than is absolutely necessary to accomplish your goals.

That means you have to take a step back and be clear about why you’re investing in the first place. It’s critical to know when you’ll need to spend the money you plan to invest, because that determines what you should do with it.

If there was no risk to getting a big return on your money, everyone would run to the highest-yielding investments. But high return investments usually bring higher risks, so they need to be used carefully.

For instance, a stock mutual fund with an 8% average return over the previous 12 months is riskier than a bank savings with a guaranteed 0.5% return. If the financial markets decline, you might earn much less than you expected from the mutual fund—but the savings account has no volatility and will always pay a reliable, but very low, return.

If your long-term goal is to have a nest egg that allows you to stop working and to maintain your existing lifestyle in 20 or 30 years, keeping money in a safe place—like a savings account or a low-yield CD—simply won’t get you there.

For example, if you save $500 a month in a bank account with an average return of 1% over 30 years, you’ll accumulate about $200,000. But if you invest the same amount over 30 years with an average 8% return, you’ll have close to $750,000 to spend. That could make the difference between scraping by or being comfortable in retirement.

Therefore, taking calculated investment risk is an important part of your financial life. Without it, your money won’t grow fast enough to achieve your long-term goals. Keeping money safe and cozy in a low-interest savings account stunts its potential and doesn’t give it the opportunity to grow.

The reality is that not taking enough investment risk might actually be the riskiest move of all! That’s because you could fall short of your goals or run out of money during retirement.

Whether you avoid risk intentionally or have simply been procrastinating investing, the result could be devastating to your financial future. So I’d encourage the anonymous podcast listener to get started investing as quickly as possible. I’ll explain where to invest in just a moment.

What Money Should Be Saved (and Never Invested)?

But what about short-term goals, like building an emergency fund, buying a car, or putting a down payment on a house in a few years? As I mentioned, the timing for spending your money determines what you should do with it.

The money you want to use for short-term goals should not be exposed to market volatility. In other words, money that you might need to access quickly should never be invested because there’s a real possibility that an investment could drop in value at the moment you need it.

Even though safe, low-yield options—such as a bank savings or a money market deposit account—are poor choices for your retirement funds, they’re perfect for your short-term goals and emergency savings.

So, even though we tend to use the terms saving and investing interchangeably, don’t confuse them. Here are the major distinctions between saving and investing:

Saving is putting money aside without exposing it to any or little risk, such as in a savings account, money market deposit account, or a certificate of deposit (CD).
Investing is committing money to an endeavor or account with the expectation that you’ll make a certain amount of profit or income. The risk is that you’ll receive less than what you expect. Or worse yet, there’s a possibility that you could lose your entire investment. As I mentioned, increased risk generally goes along with the potential to make more money.

Where Should I Invest Money?

Before you do any investing, your first financial priority should be to accumulate some amount of emergency savings. That’s how you avoid getting into financial trouble if you have a large, unexpected expense or lose your job or business income.

Ideally, everyone should have a minimum of 3 to 6 months’ worth of their living expenses tucked away in an FDIC-insured bank savings account. If that amount seems unattainable, start by saving a reasonable amount, such as $500 or $1,000. Then work on building your emergency savings at the same time you invest for the future.

The idea is that setting up your accounts and getting in the habit of saving and investing, even very small amounts, allows you to achieve financial success.

See also: A Blueprint to Organize Your Personal Finances

Once you’ve created a financial safety net, here are three strategies for how to invest your money wisely:

Strategy #1: Invest in a workplace retirement account

Workplace retirement accounts include plans like 401ks, 403bs, and 457s. They offer nice tax advantages and are mandatory, in my opinion, if you also get company matching.

A company match is when your employer invests a certain amount of money on your behalf when you invest your own money. Always contribute enough to max out a company match so you get as much free money as possible.

Employer-sponsored plans make investing really convenient because the funds are automatically deducted from your paycheck before you see them.

For 2016, the contribution limit for most workplace plans is $18,000 or $24,000 if you’re age 50 or older.

Strategy #2: Invest in an Individual Retirement Arrangement or IRA

IRAs are the second best place to invest. They’re the answer when you don’t have a workplace retirement plan or if you max out a workplace plan and still have more money to put away.

Everyone, even minors, with earned income can contribute to an IRA. They offer great tax advantages with unlimited investment options, but you can’t invest as much in them as you can with a workplace plan.

The IRA contribution limit for 2016 is $5,500 or $6,500 if you’re 50 or older. There’s no income limit for a traditional IRA. But with a Roth IRA, single taxpayers are ineligible when they earn over $132,000 and joint filers are ineligible when their household income exceeds $194,000.

You can open a traditional or Roth IRA at brokerage offices, banks, or many online sites like Betterment, Motif, FutureAdvisor, and Scottrade.

If you’re self-employed, do freelance work, or run a small business, there are great options to create your own workplace benefits by opening a Solo 401k, SEP-IRA, or a SIMPLE IRA. These retirement accounts allow you to contribute much more each year than you can with a regular IRA.

Strategy #3: Invest in a taxable brokerage account

The third best investment option is a taxable brokerage or investing account. You can use one no matter how much you earn and in combination with any retirement accounts.

You can open a brokerage account with many different investment firms or online sites. Consider making taxable investments only after you’ve maxed out contributions to your workplace plan or IRA.

What Types of Investments Should I Choose?

Once you have a retirement or brokerage account open, you’ll need to pick specific investments. Your options will vary depending on the investing company, but good choices include mutual funds, index funds, and exchange-traded funds (ETFs).

If you have more than 10 years before retirement, choosing funds made up primarily of stocks, or labeled as growth funds, is the best way to get an optimal return on your investment.

Many accounts offer target date funds that invest based on the year when you plan to retire. For example, if you want to retire in 2040, the name of the fund would be something like “Target Date 2040 Index Fund.”

Target date funds are very convenient because they automatically rebalance on a periodic basis to achieve growth in the early years, but then become more conservative as you approach retirement.

Listener Question About How to Invest Money

So let’s get back to the anonymous listener’s question about how to invest $20,000 that’s currently in his savings account. The answer is to hold back enough to maintain a healthy emergency fund and to also get started with an IRA, assuming a workplace plan isn’t an option.

The deadline for contributions to a workplace plan is December 31, but you have until until the tax filing deadline to contribute to an IRA for the previous year. If the listener can make this year’s deadline of April 18, he could fully fund an IRA for last year with $5,500.

Then he could begin making monthly contributions that would add up to $5,500 by the end of this year. His savings account would have the remaining $9,000 balance earmarked for emergencies.

If the listener doesn’t make the deadline for contributing to an IRA for last year, he could contribute some amount to a taxable brokerage account instead.

The Secret to Investing Success

Getting in the habit of investing consistently sooner, rather than having to invest more money later, is the secret to investment success.

Never think you should wait to invest until you have more money. Even if you only have a small amount to put aside, that’s okay. Contributing just $50 a week over 25 years with an 8% return would give you close to $200,000.

Just remember that you should never put money in a retirement account that you might need to spend. If you take a withdrawal before age 59½, you’re typically charged a 10% early withdrawal penalty. Roth IRAs give you the most most flexibility for withdrawals, but it’s wise to leave your retirement accounts untouched for as long as possible so you get maximum growth.

The saying time is money is the absolute truth when it comes to building wealth for your future. Investors who start late usually have to make huge financial sacrifices to accumulate enough money to reach their goals—or they’re forced to work much longer than they want to.

Starting early puts the power of compounding on your side, which turbocharges growth in your account. That means you can invest less but end up with a bigger balance at retirement than if you started late and invested more.

Find the grit and determination to always invest at least 10% to 15% of your gross income for retirement. If you have a workplace plan, consider increasing your contribution by one percent or more every year until you can max it out.

If your best investment option is an IRA, get it set up for monthly recurring electronic contributions from your checking account. Same goes for a brokerage account, so your investments are spread out over the year and happen on autopilot.

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