Retirement Plans: The Best Order to Invest Your Money

[00:01] the most is where should I invest first? Should I focus on my 401k, a Roth IRA, a taxable brokerage account, real estate, an HSA, a 529 plan, etc. you my opinion on what's the most, what I'd say optimal ordering to get the best

[00:17] So, I know that this won't be a one-size-fits-all, but honestly, it's probably going to be applicable to most people. So, my disclaimer is please understand that everyone's financial situation is different. Tax brackets are

[00:31] different, income is different, some people have children, some people don't. others don't. So, this is going to be my opinion. You can think of this as a framework. So, let's begin. The first priority in my

[00:45] opinion is not investing at all. It's about protecting you financially. maximize returns, you need to make sure that you have an emergency fund, and I'm So, imagine your car breaks down, you lose your job, your AC stops working,

[01:02] know, something with your kids, you know, kids are always expensive. If you have absolutely no cash saved, then you're probably going to be then, what's going to happen? You're going to be paying 23% interest. So, the

[01:17] very first thing that I recommend is building an emergency fund, and it doesn't have to be 6 months or 12 months worth of living expenses, because if you're in the situation like you're in this position right now, then

[01:29] getting started, but you want to move this one in the right direction. Like, this should be the priority, no joke. And whatever you build up will help cushion the blow or cover that unexpected expense.

[01:42] having to liquidate your stocks or your retirement account, especially at a bad time. So, once you've done that, now we can move on to investing. Now, the second thing that I would do is capture your

[01:55] employer match. Like, take full advantage of this one. If your employer offers a retirement plan, let's just say a 401k, a 403b, or and they're offering a matching contribution, then I'm telling you, take

[02:08] So, like, if your employer says, "We'll match 100% of the first 5% that you then that's going to be an immediate 100% return on your money.

[02:20] investments that can compete with that rate of return. So, before worrying about picking the perfect stock or timing the markets, I'd say go for the free money. Now, I'm not saying that you have to max

[02:34] out the entire accounts right away. I'm simply saying that contribute enough to take advantage of that. Now, the third thing that I would do is pay off high-interest debts. If you're paying 23% interest on a

[02:49] average, and you're hoping that your investments then the math doesn't work out. I mean, it's crystal clear. You're making 10% pre-tax with your investments, and you're paying 23% on

[03:03] Now, if you pay down your high-interest debts, it's like making a guaranteed 23% return on investments. So, that's very difficult to beat. Now, I'm talking specifically about high-interest debts. Like, we're talking

[03:17] about credit cards, certain personal loans, like things like that. So, I'm not talking about a low-rate mortgage. Like, those are completely different conversations. Now, the fourth thing that I would do is to build a

[03:30] fully funded emergency fund. So, there's debate whether that should be 3 to 6 months of necessary living expenses. Some people want a bigger cushion. Some people want 12 months. But, once you've completed this quest,

[03:45] your financial situation, your foundation. fund, then it's going to mean that you're less likely to sell investments during a recession or stock market corrections.

[03:58] panic, less likely to borrow money with high interest rates. It's basically going to give you more options. And in personal finance, options are valuable. Now, the fifth thing that I would do, if you're

[04:10] eligible and it makes sense for you, and also depending on you and your family, it would be to max out your health savings account, also known as an HSA. So, personally, I have an HSA. I think that the tax benefits are OP'd,

[04:24] going to be straightforward with you. Honestly, I believe that this is one of the most underrated investment accounts available. Okay, why do I say that? Because an HSA receives what many people call triple tax advantages. You get a

[04:39] tax deduction when you put money into the HSA, when you contribute, your investments grow tax-free, and qualified medical withdrawals are also going to be tax-free. So, I'll tell you I believe that is an incredible

[04:51] combination. Even if you're healthy today, like health care expenses eventually arrive for almost everyone. But because of that, I think that an HSA deserves serious consideration before many of these other investment accounts.

[05:04] That's just my opinion. Now, not everyone qualifies. You deductible health plan, but if you do looking into. Now, the sixth thing that I would do is

[05:16] to max out your IRA. And honestly, if we're talking about IRAs, I would max out the Roth IRA. Like that would be my priority. always do a backdoor Roth IRA. Like that, you always have that option.

[05:29] I'm not going to deep dive into the whole taxation issues when a traditional IRA has a mix of pre-tax and after-tax money. Like that's for a different But for many people, you can contribute directly into a Roth IRA or backdoor it.

[05:44] Now, when you put money into a Roth IRA, okay, so there's going to be pros and cons. The con is that you do not get a tax deduction for contributing to your Roth IRA. However, the pro is that all the

[05:57] tax-free when you take it out at retirement. So, that's why it's a huge advantage if you get your Roth IRA started early. that. Imagine that you have 30 years or you have 40 years of gains growing

[06:13] retirement. So, that's going to have built up so much more if you've only been doing it like you got started and you did it for 10 years or 20 years, obviously. Additionally, if you make direct

[06:25] contributions to a Roth IRA, then you can withdraw your contributions at any can withdraw your contributions at any time, tax-free and penalty-free. So, a lot of people don't know that. Like, for example, if I put $5,000

[06:39] directly into my Roth IRA and it grows to $5,200, then I can take out that $5,000, like my initial contribution, tax-free without any tax liability or penalties. So, it's going to be the $200 of growth

[06:55] that would be subject to tax and penalty. Now, the seventh thing that I would do is to go back and continue funding your employer retirement plan. So, that might be your 401k, your 403b, could be a TSP, etc.

[07:09] So, the reason why I didn't place this ahead of the IRA is because many IRAs they offer a larger selection of investment choices. There's also lower costs with the IRA, there's greater flexibility.

[07:21] But, I'll just say, "Listen, every every employer plan is different. You know, some are excellent, some are terrible. But, generally speaking, after the IRA retirement account." Okay, here's the eighth thing that I

[07:35] about a taxable brokerage accounts and the focus is going to be on the stock market with this account. Now, unlike retirement accounts, there's limits. There's going to be many more investing options, of course.

[07:50] accessing your money, so it's going to be much more flexible. Like if you need the money in 10 years, then fine. If you need the money in 10 Now, I'm not saying that there's not going to be any tax consequences. I'm

[08:03] just saying that you're going to have access to that money without being And of course, you're going to have many more investing options, like more choices. Like you want to buy silver? You want to buy gold stocks? You want to

[08:15] buy crypto? Dividend stocks? Tech stocks? Growth stocks? ETFs? like you're going to have so many more options. Now, here's my advice. brokerage account, then you should really be focusing on long-term capital

[08:30] gains. Also, if you didn't know, if you don't have much income, the long-term capital gains tax rate is 0%, like no joke, at the federal level. So, a tax a taxable brokerage account's

[08:43] going to become an excellent tool once you take advantage of your tax advantage Now, step number nine or the ninth thing that I would do is that if you have children, you may want to consider a 529 plan.

[08:56] one any higher on the level of priority. That's because not everyone has children, maybe the children are older, or not everyone has plans to help pay But if education funding is one of your priorities, then I'll tell [snorts] you

[09:10] tax-free growth and disbursements if used for qualified education expenses. And I want you to know that some states will give you a tax deduction for your state income taxes for your contributions.

[09:24] Again, this becomes more about your goals, because not everyone needs one or wants one. Now, moving on to step number 10 or the 10th thing that I would do is real estate. And I'm not talking about your primary residence. I'm talking

[09:38] about investing in real estate. So this is where opinions begin to estate should come much earlier like on the priority list, especially like if you're in the industry then you know, you're more inclined to say that.

[09:52] Others prefer investing, you know, exclusively in the stock markets. But listen, like I said before, there's going to be pros and cons. I place real estate lower on the priority list because in my opinion the

[10:04] it's going to be more convenience for most people. So the stock market's more liquid of course, like if you need money next week position and have your money in your bank accounts within a matter of days,

[10:18] And it's not going to be so easy with a property of course. And then you have tenants causing problems or complaining and you know come out of your pocket and of course

[10:31] you that real estate offers advantages as well. Rental income, potential as well. Rental income, potential appreciation, leverage, tax benefits. responsibilities. We're talking about maintenance, vacancies, property taxes,

[10:46] insurance, unexpected repairs. At the end of the day, I mean it's a management company, well, of course they're going to charge you. So listen, financial foundation before taking on those additional responsibilities.

[11:03] But personally, I have rental properties. After years of going through give you my honest opinion. Like I'm just no longer a fan of residential rental properties. Like I I don't I don't want to sell them, but

[11:18] I'm debating whether I should get into retail or not. Like we'll see. But just much. Another option is to buy REITs, real estate investment trusts, on the exposure. I might just do

[11:33] private equity and other alternative investments. So, these have the potential for much higher returns, like ridiculous returns, but they also come with much higher

[11:45] They're often going to be less liquid, they're going to be more difficult to value, and sometimes your money's going to be locked up for years. So, that's why I think these belong near the end of the financial order of

[11:57] operations. Build your foundation first, and then you can venture into more high-risk, high-reward investment opportunities. Listen, we currently live in an era of a 5-second attention span and people wanting to get rich quickly.

[12:10] You know, not everyone, but so many of the youngsters these You Like, but building wealth, it's not about finding one incredible investment. consistently making good financial decisions over the long run.

[12:24] Now, getting your employer match, taking advantage of tax benefits, avoiding unnecessary debt, and you know, very high interest rates that you're paying, and invest consistently. And I'll just say let the compounding do

[12:36] like what I just said, they probably but they're effective. Listen, I'll tell you that if you take this advice and you're disciplined about it, your friends, your family, coworkers, they're

[12:49] ahead. You know, probably they're most likely secretly. And then, they're probably going to ask you for some money. So, if you actually do this, I'll just Here's my advice. Don't advertise to

[13:02] people how much money that you have. You're just setting yourself up for problems, unless that's what you want. Now, if you're a long-term investor, then I encourage you to please check out our financial community on Patreon. You

[13:14] chat with me and others in our private chat room in Discord. You can get your questions answered. So, I'm going to leave a link for you down below. Thank you so much, and I wish you a very nice day. Take care.