This is a blog comment I wrote to a reader question sent to Alicia Adamczyk on Lifehacker’s Two Cents blog, titled “How Freelancers Can Save for Retirement Beyond an IRA.” The question is from a freelancer in animation or a related entertainment profession. This person is unable or can’t figure out how to contribute more to his or her 401(k), is contributing the maximum to an IRA, and has a “sizable” emergency fund but worries about income stability.

I would prioritize investigating and gaining online access to your current 401(k) to see what it’s being invested in, what the management fees are, and whether you can change to a low-fee index fund of the whole U.S. stock market or S&P 500.

You are already ahead of the curve to be contributing $5,500 per year to an IRA and by having an emergency fund. The two main reasons to start investing for retirement early are (a) compounding returns and (b) tax avoidance. You can’t go back years in the future to make an IRA contribution for the 2018 tax year, for example, nor can you make up for compounding returns.

With a time horizon of many decades, equities (stocks) are the best investment. You can divide your monies between index funds of the U.S. stock market and the international stock market (i.e., all other countries except the US) for further diversification. Investing in any particular stocks or market sectors is a bad idea.

As mentioned, an SEP IRA for self-employment income is an option. Another would be to get a second job just to contribute more to a 401(k) plan (the annual limit for employee contributions is $18,500, presently). For instance, Starbucks allows employees to contribute up to 75% of their paycheck to a traditional or Roth 401(k) plan, and matches the first 5% contributed.

As mentioned, a taxable brokerage account is also recommended. It can be invested in the same broad index funds at the same low management fees, and most of your gains and losses are “unrealized” until you start cashing out later in life. While the quarterly dividends you will receive are taxable, many of these will “qualified” dividends that are taxed at a lower rate, or not at all, depending on your income.

Although the traditional advice is to have an emergency fund of six months living expenses, as a freelancer your income is less stable so you may want to increase this to 12 months. The emergency fund should be liquid and non-volatile, meaning it should NOT invested in equities. As of May 2018, there are many savings accounts through reputable online banks (e.g., Ally Bank, Discover Bank) that pay 1.50% APY or slightly more, and your deposits are FDIC insured up to $250,000.

One reason to keep your emergency fund in a savings account, rather than plowing it into equities, is that stock market crashes often occur at the same time as tough job markets. You don’t want to be in a position where you must sell your stocks during a recession just to pay your bills.