WARNING: This is still a draft. Please post comments with questions and suggestions.

Previously we concluded that I wanted to retire with $2-4 million dollars in the bank (so to speak), but I didn’t have any money to save towards that goal. I also didn’t have any money to pay off the debts that I had. However, I was paying $1500/month towards debt.

Eventually my debts were paid off. I can’t describe the feeling of being debt free for the first time in my adult life. Wait, I can describe it: liberation. You feel this great weight off your shoulders when you realize the liberation of living debt-free.


Once all my debts were paid off, I had an extra $1500 in my pocket every month! Woo! Free money! Time to spend it on video games, expensive vacations, sex, drugs, and rock and roll! Wooo!!!!

Or, we can be a responsible adult.

Here’s the strategy: I was used to living without that $1500/month, so I won’t miss it if you start putting that towards my retirement.

The question becomes, where should you invest it?

Well, I’ve already told you. You should hire a personal financial advisor and let them work out the details.

However I know you are going to procrastinate and not hire that person for a few months, or a few years. In the meanwhile, you need a relatively safe thing to do with the money so you don’t spend it on video games, expensive vacations, and so on. In fact, you don’t even want to get used to having that much cash laying around.

My advice is to put it somewhere safe and non-controversial until you’ve hired that advisor.

My recommendation is “Target-Date Mutual Funds”. Let’s break that down:

A mutual fund is a bundle of stocks. Say you have $10,000 invested in a mutual fund. The fund manager takes your money and all the other investors (it could be billions of dollars) and invests them according to a particular strategy. One fund’s strategy might be to invest in foreign stocks. Another might be to invest in high tech companies. Another might be to invest in low tech companies. If you think the construction industry is going to do well for the next few years, but you aren’t sure which companies to invest in, you can find a mutual fund that invests in a variety of construction-related companies. The fund manager does the research and investments for you.

Mutual funds can be complex because there are so many of them and some of them require you to pay a lot of fees up front (that fund manager and his/her staff have a salary and other expenses) while others build their cost into the product to make it invisible.

A good strategy is to have some high-risk mutual funds, some low-risk ones, a few international, a few domestic. This spreads the risk and diversifies…. ok, ok, whatever. This is why you need a personal financial advisor who can explain all this to you.

Spoiler alert! They’ll tell you that you want to reduce your risk the closer you get to retirement.

However if you want a nice safe, non-controversial, mutual fund to invest in, someone invented what I think is the best thing ever: Target-Date Retirement Funds.

A Target-Date mutual fund’s strategy is “do what a typical personal finance advisor would recommend for a person retiring in year X”. For example the Vanguard Target Retirement 2060 Fund has a strategy that is appropriate for people retiring in the year 2060. The Vanguard Target Retirement 2020 is appropriate for people who are retiring in 2020 (and will invest in much less risky stocks).

Vanguard has funds with target dates of 2015 through 2065 in five-year increments. These funds are “index funds” which means they track indexes like the S&P500. These tend to perform well when the stock market performs well, and aren’t too bad when the market is doing badly. Your financial advisor will explain more. Just don’t invest in Dogbert’s mutual fund.

My nice safe, non-controversial advice is to open an account with Vanguard and put that $1500/month that you were living without and put it towards the fund nearest your retirement year. If you are comfortable with more risk (and potentially more reward), round up. If you are skittish, pick an earlier year.

I like Vanguard because it is a non-profit created to serve its participants, like a credit union. There are other companies you can use, and most of them now have a Target-Date fund.

Do Target-Date funds eliminate personal advisors?

If a target-date fund does what a personal advisor will do, why do I still need to hire a personal advisor?

A personal advisor will also make sure you have other important financial instruments like life insurance, disability insurance. They’ll nag you until you have a Will and other “end of life” documents. They’ll also help you with special things like saving for children’s college education, and more.

Where to invest: the details

Here’s the general formula that any advisor will tell you.

Bucket 1: 401k matching. Invest in your 401k up to the point that your employer will match. We discussed that earlier. Not doing this is “leaving money on the table”.

if you have money left over…

Bucket 2: Paying down debt. (Oh wait, we’ve eliminated our debt.)

if you have money left over…

Bucket 3: Max out your 401k. You can contribute up to $18,500/year to your 401k, or $24,500/year starting the year you turn 50. The tax advantage is huge. (NOTE: These amounts go up every year. Google search to find this year’s limits.

if you have money left over…

Bucket 4: Target-Date Mutual Fund or whatever your financial advisor recommends.

In my example I now had $1500/month to put into investements.

Use that money to max out the first bucket, then the next and next.

And then?

Once you’ve done that, find a financial advisor.

It might take you a year of procrastination. During that time, you’ll accumulate a nice, safe, investment balance.

My suggestion to to ask friends and coworkers if they like the one they use. Vanguard has a personal advisor feature. Some employers have a financial advisor benefit. Or, if you come from a wealthy family you might have an advisor that your entire family uses… ha ha ha, just kidding. If you are wealthy you probably aren’t reading this.

Expect to pay $2000/year for a personal advisor. If they are “free” it means they work on commission and have an incentive to put your money in what works best for them, not for you.