More Thoughts on Investing: What Is My Goal?

Do you need a goal besides “I want more money?”

So I read all of the comments y’all left on my “is it time to start investing” post, and here are a few responses to some of the frequently-commented suggestions.

Is It Time for Me to Start Investing?

First: I know about the SEP IRA, aka “the retirement account for freelancers.” The reason I’m more attracted to the Roth right now is that it feels achievable. I can put $5,500 in it this year, I can reasonably assume that I’ll be able to put $5,500 in it next year, and I’ll be able to tick the box that says “I did the responsible thing.”

If I did the SEP, I wouldn’t be able to hit the “invest 25 percent of your income” maximum without being more frugal than I want to be right now, and I’d have to continually ask myself “am I investing enough?” and then feel bad if I wasn’t hitting the maximum.

This is an emotional decision and not a financial one! Perhaps it is foolish. We are emotional beings.

Second: Totally Vanguard. I’m thinking a target-date fund for the Roth and an index fund for the “ordinary investing,” and I have specific funds in mind but I’m not going to name them because I am not a professional investment advisor and I don’t want to act like I’m giving advice. Both of the funds I’m looking at have over 7 percent returns for the past five-year period, which does not predict future performance but is a good data point regardless.

Third: Funding the Roth will happen before the end of the year; funding any other investment accounts will likely happen in early 2017, if in fact I end up making that decision. I am well aware that the election could do all kinds of things to the market. I am also guessing that if the stock market drops after the election, putting $5.5K into a Roth during the downswing is not the worst strategy? (ONCE AGAIN I AM NOT A PROFESSIONAL INVESTMENT ADVISOR I HAVE READ LIKE TWO BOOKS AND A BUNCH OF BLOGS.)

Fourth: I am going to put money into a retirement investment vehicle because I’ve heard that is the thing you are supposed to do to be financially responsible. (I’m also aware that we’re still testing this whole “investments are the best way to save for retirement, they’re way better than pensions” idea, and that it hasn’t worked out well for everybody.)

But a handful of commenters asked me if I had a goal for the “ordinary investing” vehicle, and it’s a good question. In fact, it’s the same one certified financial planner Carl Richards just asked in The New York Times:

Do Your Investments Actually Help You Reach Your Goals?

I ask one simple question, “Why is your money invested the way it is?”

There is only one correct answer, which I’ll share in a bit, but in 10 years, I’ve never had anyone give it to me the first time.

Here, I’ll spoil it for you:

The only correct answer is, and always will be, that you invest your money to give yourself the highest likelihood of reaching your goals.

My goal, re: investments that aren’t designated for retirement, is “to make as much money from my money as possible.” I don’t have a specific goal at the moment, like “saving for a down payment,” and I don’t anticipate that I’ll earn enough from these investments to do that.

If I invest $3,000 to start, add $500 every month, and get a 7 percent return, I’ll have $9,630 at the end of the year according to Dave Ramsey’s investment calculator. Which is way better than keeping cash in a savings account, but it’s not down payment money. It’d take, like, five years of consistent investing and a 7 percent return to get that much money.

So my goal at this point is nebulous. I’m thinking in terms of the next year, not the next five years, and I’m also thinking primarily about increasing my net worth rather than saving for anything in particular.

Does that mean that investing is the smart financial move? I don’t know. (It feels smart, but as I mentioned before: we are emotional beings.) I do know that it’s a question that a lot of Billfolders are asking themselves right now, so I will keep you updated on my thought processes as I come to my own decision.

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