Simplify Your Finances: Organize Your Investments your investment strategy is an ongoing process. It takes time to perfect. I am not even close to perfecting investment strategy, partly because I just started investing last year. But, I will reveal with you my thoughts on how I want to start investing for the next ten to twenty years. My stratey involves a retirement account and real estate investment.

Retirement Account (75% of investment strategy): Right now, I am contributing the maximum amount to my 401(k) that gives me the maximum matching contribution from my company. I put in 6% of my income and receive an additional 3% in additional contributions from my company. If your company has a 401(k) plan with a matching contribution benefit, DO NOT pass it up. It is free money, and you cannot pass up free money if you want to become wealthy. You can choose to either have a 401(k), an IRA, or both. I’m going to keep my 401(k) and soon open up a Roth IRA, because I do not like the limited amount of investment choices in my 401(k). In your retirement account, if you are under 40 years old, I invest in growth stock mutual funds and index funds. If you are over 40 years old, you may want to be a little more conservative with your investments, but you can still pick large cap growth stock funds and index funds. You may want to throw in a high-yield bond fund or a growth fund that pays dividends.

Real Estate Investing (25% of investment strategy): I will eventually build up a real estate portfolio, but I am going to do it the unconventional way. I will pay cash for my real estate, so the cash flow will be 100%, less maintenance and tax expenses. It’s the only sure-fire to win with real estate. When you buy a real estate investment property with no money down and expect to hold it for the appreciation, you could lose your shirt.

The Single Most Simplified Investment Strategy:

  1. Open up a Roth IRA
  2. Buy 3 Index Funds and 3 Large-Cap Growth Stock Mutual Funds
  3. Systematically invest 15% of your paycheck to the account.
  4. Don’t touch the account for at least 20 to 30 years!
  • [email protected]

    This is a GREAT plan for simplifying your finances. If you’re employed, there’s nothing better than a 401(k) with a matching contribution from your employer. Yes, it is like you’re getting free money from your company. And opening a Roth IRA is great if you qualify for one.

    I just have a question about your Real Estate Investing strategy. I understand why you want to pay cash. But my question is how much cash do you want to accumulate before you buy an investment property? And how long will it take you to accumulate that cash?

    The reason I ask this is because the multi-family RE investments that I’m researching now cost at least $400,000. And for me to accumulate $400K by putting just 25% of my net income towards it would take me 13 years to accumulate that cash. That’s why I’m looking to finance at least part of it – I don’t believe in the No Money Down scam. That will make your bankrupt fast.

    Thanks for the great post. Keep posting.

  • ekrabs

    I like your plan as it is simple, but can be effective.

    Personally, I don’t care for real estate due in part to its high cost of entry.

    However, if one MUST do real estate (not REITs, or companies involved in real estate or the housing market) then I agree that paying for cash up front is the best way to go… but did I mention high cost of entry?

    For the rest of your investments, may I recommend looking into something like a Target Retirement Fund? It’s a fund of fund set the asset allocation as well as rebalancing for you. You just set it and forget it! And it’s pretty good too.

    If you insist on DIY, I recommend to be careful about over-weighing your funds towards correlated funds. For example, why would you want 3 large cap growth funds? What’s wrong with 1? Also, many index funds will naturally have a large percentage weighted towards large caps to begin with, so having even large caps– in my opinion anyway– sort of defeats the purpose of diversification in the first place.

    Again, please feel free to take a look at Target Retirement Funds. You’ll see that the asset allocation is already set for you. If nothing else, I think it’ll give one a better idea on what their funds should probably look like (which should probably include some international fund, a small cap, maybe a mid cap, and even a quality bond fund).

    In fact, chances are very good that I’ll roll my 401k into Vanguard, simply buy their Target Retirement Fund there, and call it a day….