Save as much as possible, pay off credit-cards, max out employer-matched and other retirement accounts, invest remaining in non-retirement account.
Invest with a simple, ‘lazy’ investment strategy that doesn’t require lots of time/effort/complexity; for example, 3 funds in Vanguard.
More Specific
Save as much as you can (within reason) (i.e. cut frivolous expenses)
Pay off all bad/high-interest debt first, as quickly as possible (credit-cards, auto-loans, etc.)
Next, set aside 1-3 months worth of expenses for an emergency fund
Next, max out any employer-matched retirement accounts, as this is literally free money
Max out all tax-advantaged retirement accounts (different annual limits based on whether IRA, Simple IRA, Roth-IRA, 401-K)
Still have money left over? Invest in a non tax-advantaged account
Invest as much/often/early as possible for maximum time in the market and potential compounding growth
Don’t try and ‘time the market’
If needed, consult a Fee-Only financial-planner, especially for the confusing stuff like retirement-accounts, taxable events, etc.
Invest with a simple 2-5 fund strategy. Look for low expense-ratio funds e.g. this sample 3-fund portfolio in Vanguard:
50% VTSAX (total US stocks) (0.04% ER)
40% VTIAX (total international stocks) (0.11% ER)
10% VBTLX (total bond market) (0.05% ER)
Rebalance quarterly or yearly, but otherwise try and automatically invest, and never panic-sell. Just keep buying with the idea that with dollar-cost-averaging, the value of the stock market will hopefully go up ~7%/year averaged over a 1 or 2-decade period.
Dollar-cost-averaging means buying a steady amount bi-weekly, monthly, etc, and as prices go down, you’re getting more shares automatically, and as prices go up, that’s alright because it’s increasing the value of your portfolio.
Rebalancing means: Sell/buy portions of the above 3 funds until you are again at your target-ratio. I.e. if VTSAX outperformed VBTLX, and is now worth 65% of your account, sell the appropriate amount and distribute to the other 2 funds, so you’re back at your 60-40-10 ratio.
Benefits of the ‘Bogglehead’ strategy
It’s simple, requiring little time or work to maintain (theoretically can be pared down to as little as 15 minutes of maintenance per year!)
It is theoretically safer by helping investors avoid many of the pitfalls of investing:
Buying high, selling low, or panic-selling
Losing most of the advantage due to transaction fees, expense-ratios, and taxes
Losing tons of money trying to pick individual stocks or investing tons in other highly speculative ‘investment opportunities’
Dollar-cost averaging should improve one’s performance even in a volatile market, by automatically having the investor buy more of a stock when the price is low, and less when it’s high.
Caveats
The Bogglehead strategy is a long-term strategy, that requires patience, faith, and fortitude, especially in large market-downturns. It only works if the investor stays the course. It’s predicated on the idea that the total stock market will go up in the long run, (counting inflation)
Sections of the market could always crash, and diversifying across asset classes (us stocks, total stocks, bonds) may not be proof against that
Doing total-market, instead of just the S&P500, while more ‘diversified’, may lead to lower returns than a super-simple 1-fund portfolio: 100% VFIAX (tracks S&P500)
The Bogglehead Strategy may be missing the key benefit of dividends from individual stocks
The Bogglehead Strategy will underperform compared to someone who just gets lucky (e.g. someone who bought bitcoin or bought nvidia stock 10 years ago)
The Bogglehead strategy may also have other pitfalls that something like Nassim Taleb’s Barbell-Strategy would avoid (see below)
Nassim Taleb Barbell Strategy
Nassim Taleb suggests that one should avoid the ‘middle-risk’/‘middle-reward’ path of stocks and index-funds, and instead get the best of both worlds by having:
80%-90% of assets in super secure, practically no-risk forms e.g. cash and bonds (and perhaps property counts)
10%-20% of assets in extremely high-risk/high-reward forms e.g. options, very speculative markets, etc.
This gives you a maximum 20% loss of total wealth, versus theoretically unbounded upside (a stock could crash and your put option could x10000, as an example)
The main downsides I see with this are:
It requires expertise, and the people on the other side of the trades are basically always going to have more knowledge/experience than you
What happens when you repeatedly keep loosing that 10% that you allocated to the risky portion of the strategy? Do you just give up at that point?