I want to discuss my personal investment strategy for my own benefit as much as yours. I am a far stretch from a financial expert, and I am confident that I can learn from the College Investor audience when it comes to developing a solid investing strategy.
With that said, I believe that many in our audience are in a similar situation to mine, or will be in a similar situation in the near future. By walking through my current investment strategy and mindset, and from soliciting your feedback in the comments, I hope we can help each other!
My Life Situation
Here is my current life situation: I am 31, currently married (Have been for 8 years), have one dependent and one on the way. Current pre-tax income is right at $80,000, $15,000 of which is from self-employment. My only current debt is the mortgage on our single family home.
My Investing Goals
My wife and I sat down a few years ago and outlined our investing goals. It wasn’t an official meeting with minutes, just a conversation about what was important to us, and how we should try to align our finances to best meet our life goals.
I highly recommend that you take the time to engage your partner in this decision (If you have one). Being on the same page financially can help mitigate future frustration, pain, and anger. It also helps to have a second mind to think through life goals, and it can be a very fun process if done well!
Our investing goals are as follows:
- Invest for a comfortable retirement. I would like to retire by 60, and enjoy 70% of my current income in retirement.
- Save for our children’s education.
- Save for our children’s weddings/graduation
I work for a public university, so my employer offers a 403(b), as an alternative to a 401(k). I have 8.75% of the monthly income auto-invested into this plan every month. My employers matches 3%, so that is also contributed into this plan every month.
I am able to choose my investment allocations, and have placed them in a target date index fund for 2050. This allocation is more aggressive today, and will gradually re-allocate the investments to be more conservative as I approach my target date. I intentionally selected a target date fund that is well past my retirement date, as I would like to continue to be aggressive in investment past my actual date of retirement.
In addition to my 403(b) contributions, my wife and I also contribute to a ROTH IRA. This allows us each to contribute an additional $5,500 per year, and I like the ROTH because we can pay taxes on the investments today, and withdraw the funds tax free in retirement.
Our ROTH IRA is invested through Fidelity, and we use a target date Index fund for low cost hassle-free investing there as well. At the moment, we do not have any additional disposal income for investing in our retirement, but if we do in the future, we plan to open a SEP IRA since we are also self-employed, and fund that with additional tax-deferred investments.
Between my 403(b) and ROTH IRA contributions, I feel confident that I will be able to maintain my goal of 70% of current income throughout retirement. Based on average historical returns, and a target date reallocation strategy, I am confident that these returns are achievable. However, I am also investing in rental real estate to bolster my retirement earnings, and provide for positive cash flow during retirement.
To reach our goal of funding our children’s education, we have begun investing into a 529 College Savings Plan. We have two children, and are investing $100 per month into each child’s fund. Based on a time horizon of 18 years, I feel confident that with potential scholarships and other financial aid options, we will be able to cover all of the expenses for both of our children to earn a Bachelor degree. Graduate school is on their own!
Finally, to save for our goal of helping cover some expenses related to our child’s wedding and or give them a nice graduation present, we have decided to invest $50 per month, per child, in a taxable investing account. This is the option I am least confident about, and would love for some input from the College Investor community!
I have setup a DRIP (Dividend Reinvestment Plan) that allows me to invest a small amount of money each month into individual stocks. However, I understand that this method of investing is very risky, and would like to find a more stable means to grow this money. Our plan would then be to sell all or some of the portfolio when we need the funds to pay for a wedding or graduation present, and pay any applicable taxes at that point on our gains. It would be long-term capital gains taxes however, which hopefully will still only be 15%.
I have no idea what the future holds, but I am generally happy with my investment strategy. It seems to cover all of the investment goals that my wife and I have set for ourselves, and leaves plenty of room for increases, and adjusting over the years.
I would love to know what you think! Am I crazy, or do you have a similar strategy? What would you recommend I do differently?
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