Investment Guide


Investment Guide

Investing can seem so complicated that some just shut down and do nothing — or hire a salesperson to guide them. This guide helps cut through the confusion, no matter what your investment experience is.

If you are a regular listener or viewer, you hear me talk about both Roth IRA accounts and 401(k)s regularly. The purpose of both is to give your earnings a tax break to save for your future.

  • A traditional 401(k) is a retirement savings plan that allows a worker to invest money now, and defer paying income taxes on the saved money (and earnings) until withdrawal, at retirement.
  • Roth is a modified individual retirement account in which a person can set aside after-tax income up to $5,500 per year ($6,500 for those age 50 or older).  Earnings on the account are tax-free, and tax-free withdrawals may be made after age 591/2. This tax-free status beats just about everything. And you can set up a Roth account yourself.

Maximizing your 401(k) investments

A 401(k) is a retirement savings plan offered through an employer (or nonprofit) that allows a worker to invest money now, and defer paying income taxes on the saved money (and earnings) until withdrawal, at retirement. The best way to take advantage of a 401(k) is to make sure you are contributing enough to get the employer match, which is essentially free money toward your retirement provided by your employer (as an incentive to save, plus employers receive tax benefits for contributing to employees’ retirement accounts).

Employer matches can vary, but for many companies, the way it works is the employer will match up to 50% of the worker’s contribution up to 6% — so if you contribute 6% of your annual salary to your 401(k), your employer will contribute 3%.

The contribution cap is $18,000 for 2016. Those who are 50 and over can make additional catch-up contributions of another $6,000.


But once you pick up all the employer match money you can, there may be other better investment vehicles for your money.

You only want to contribute enough to your 401(k) to pick up all the employer match money you can. Then if you’re ready to save more for the future, there are better investment options to consider for that money.

Where do you put Roth money?

The tax-free status of a Roth beats just about every other retirement savings option out there. If you have a 401(k) at work, you can open a Roth in addition to that as a way to put more money away for the future in a tax-friendly account.

So where do you put the money? Just about anywhere you want: A bank; credit union; full-commission stock broker; financial planner; in no-load mutual funds (a fund sold without commission) or with a discount stock broker. When you are young, I like for you to put the money with a discount broker or a no-load mutual fund. That’s because I want all your money working for you — and not going toward fees.


Roths are really flexible depending on which company you choose to put your money into. You can start with as little as $100 with some companies, or $500 or $1,000 with others. (Here are some of my favorite low-cost investment options, broken down by the dollar amount you need to get started. )

If you are self-employed, I’d like for you to consider opening up a simplified employee pension (SEP).

  • The paperwork to set up a SEP is simple, and you can typically open it wherever you want — at a low-cost investment house, for example — at no cost. SEPs work like a traditional IRA or a 401(k), with a current year tax deduction, but withdrawals are taxed at retirement. They also offer flexibility, in that you can put in nothing in a year or as much as $53,000. That can be really helpful during the feast or famine years when you’re launching a business.

Dollar cost averaging

No matter which route you choose, my goal for you is to have an automatic deal where you put in a set amount of money each month to build the habit and reduce the risk to you. By making regular contributions monthly in equal amounts, you are doing what’s called ‘dollar cost averaging.’ That’s just a fancy way of saying in months that the stock market is tanking, your money buys more shares, and in months that the market is climbing, your money buys a smaller number of shares.

In other words, dollar cost averaging is a way to pace your investing so that you’re buying more shares when prices are low and fewer when they’re high. Over time, putting money in this way reduces the possibility of panic in you and keeps you steady as you go. And staying in the game makes you more money over the long haul.

Investment Guides for all experience levels:

I hear from a lot of people who have the first part down — putting the money into a Roth — but are lost on the second part — what to put the money in. On my investment guide choice list, I show a number of my favorite investments that could lose money in the short term, but make big bucks long term. Based on your level of investment knowledge, pick one of the following guides.

The EASY guide is for beginners, or those who want to ‘set it and forget it.’

The MEDIUM guide is for intermediate investors, requiring more involvement.

The ADVANCED guide is designed for more experienced investors.