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I'm trying to decide where to invest next. I'm maxing out my employer matched 401k, maxing out a traditional IRA, and will soon have an emergency fund in a savings account that I'll continue to add to every paycheck. Where to next?

Moderate risk 401k, Vanguard target retirement fund, and low risk savings account. Looking for something slightly riskier.

Jul 04, 2012 by J from Canton, OH in  |  Flag
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4 votes

Great question J, the answer depends on several variables. One very important question I ask my clients is why are you investing?

Some other information I like to know about my clients’ is, what is their tolerance for risk, what is their investment time frame, and what are their financial responsibilities?

I recommend you find a financial professional to work with you. All success is accomplished by have a great team. Olympic athletes have coaches, trainers, doctors, agents, and other professionals on their team. Do you deserve any less? Are the fruits of your labor and your financial future not worthy of professional assistance?

I provide model investment portfolios for anyone to use at their own risk at www.DavesFavs.com These portfolios are for investors who want growth of their assets, global exposure, and are slightly riskier than what you’ve listed as your existing investments.

You’re on the right track J. I wish you continued success,

Dave

Comment   |  Flag   |  Jul 04, 2012 from Thousand Oaks, CA

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Everyone says they want more risk in their investment portfolios until they don't. In a universe of thousands of choices, it is difficult at best to provide anything more than tips. What you really need to consider is having a plan including an investment policy that will provide you with a road map for your investing. It's one thing to pick an investment but it's another to have a process for evaluating the choices and the rules for when/what to buy or sell. Otherwise, you're at risk of assembling a "collection" of investments rather than a "portfolio" built for your needs.

In addition to the suggestion of working with a qualified financial planner, I also suggest diving deep into your risk profile by using the tool at www.RiskProfiling.com. This risk measurement tool goes beyond what most advisors use because it includes behavioral analysis as well. I find it provides a more accurate risk profile for an investor.

That being said, if this is money for retirement and you're looking to go beyond what you can do in your 401(k), consider a variable annuity. You can put away more money above and beyond your elective contribution limits than a 401(k). You can access a very low cost ($240/year) variable annuity through a fee only planner (or anyone other than a commissioned insurance agent as these options are usually not offered by them). The Monument series of Jefferson National is one option and includes more than 300 different mutual fund-like subaccount investment options.

You can also consider contributing to a Roth IRA depending on your income.

Without knowing your age, investment time frame, risk capacity (which is different than risk profile), it would be near impossible to make specific recommendations.

If you are a "passive" investor, then index funds or index Exchange Traded Funds (ETFs) may be the best way to go. You can build a portfolio with them based on the models found on the Bogle Heads blog (http://www.bogleheads.org/wiki/Lazy_Portfolios).

If you want more alternative investments that you'll never get in your 401(k), then consider adding Master Limited Partnership mutual funds or ETFs for an inflation hedge and income. I think emerging markets are a good addition.

For active investment in a mutual fund, consider Kaufman for large cap, Harbor for bonds, Ivy Asset for a global "go anywhere" mandate.

Or consider bringing in a professional to help you.

Comment   |  Flag   |  Jul 05, 2012 from Amesbury, MA

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J, Congrats. Looks like you are well on track. I work with quite a few clients like this. What I suggest is the following. Work with your CPA and your financial advisor to review other tax defferred plans under the IRS guidelines. to see what works best given your individual scenario. You might want to consider a 512 i plan for great tax defferred benefits. Good luck Dan

Comment   |  Flag   |  Jul 05, 2012 from Asbury Park, NJ

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First, congratulations. The fact that you have maxed out your 401k and IRA put you well ahead of the vast majority of Americans. This shows discipline and a willingness to live below your means, both of which are commendable.

As for investment options, the answers given above about variable annuities are a decent option if you are looking for tax deferred growth and potential protection from creditors. But my preference would be to open a regular taxable brokerage account and build a portfolio of solid dividend-paying stocks, REITs, and MLPs. Whatever you lose in tax benefits, you often make up in reduced fees and greater flexibility.

A more unorthodox option would be to take a stab at buying rental property. I would advise starting with a cheap property and seeing if it is something you feel you can handle. A small portfolio of rental homes could be a nice complement to a stock and bond portfolio.

And finally, if you find yourself with more cash than you know what to do with (we call this a "high quality problem"), consider paying down your mortgage if you have one.

Comment   |  Flag   |  Jul 11, 2012 from Dallas, TX

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Great answers from Danny, Steve and David. I would agree that a written plan and a competent advisor that you trust is key. Whatever you do, please don't go chasing after the investment that has been " hot" recently like many investors do, lest you end up being " Fooled by history". See below for more on this:

http://www.completeadvisors.com/2012/04/17/are-you-being-fooled-by-history/

Comment   |  Flag   |  Jul 11, 2012 from Port Washington, NY

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