My wife and I are in our early 30s. Our gross combined income is about $125,000/year, and our rent is ~$2,500/month (we live in San Francisco). We have no debt, and we have about $85k saved up in a money market account at our credit union, which has an atrocious 0.20% interest rate. Our savings increase modestly each year; we probably end up saving about $3-5k each year and putting it in our money market account. We're also currently contributing 5% of our income to our employers' 401k plans.
We have no children and my wife is not pregnant, nor do we have any immediate plans for her to be, but we are talking about the possibility. For completeness, let's say we might have a child sometime in the next 2 years.
We don't own a house, and since we live in San Francisco, we have no plans to buy property any time soon (couldn't afford it). The possibility exists somewhere down the road, but we won't be purchasing a house purchase anytime in the next 3-5 years.
My question: What should we do with our $85,000 in savings? Friends have advised us that we should invest at least part of it to help protect against inflation. As I understand things, with the 0.2% interest rate on our money market account, our money is losing value each year. Would we be better off investing some of our savings in a conservative mutual fund? A different money market account? A CD? Some other option? Or should we just leave the money where it is?