I think that this may SEEM aggressive, but if one chooses solid companies, with good dividends, and diversifies by industry and perhaps geography, etc you’ll end up with an aggressive but relatively safe (for equities) portfolio. I am young, so this aggression is for the purposes of building value over time.

Of course, this is above and beyond the Max 401k and Roth IRA contribution.

-William
A Financial Revolution

I think Single Ma said something similar on her blog in the last day or two, but here goes. I was told this by one of the resident assistants when I was a freshman in college, and it stay with me today.

“If you want something you’ve never had before, you have to do something you’ve never done before.”

You’ve covered the basics, and clearly you’ll continue growing that foundation. But it is a foundation. At some point, you have to build the rest of the house, right? Additional income streams, whether passive business income, passive investment income, and whatever else works for you.

I do agree with Mike that you must know yourself. But that foundation should help steady you. As long as you are doing that aggressively, it should take some of the edge off your fears. Everything else about that foundation is basically gravy.

If this post makes no sense, don’t worry, I don’t quite get it either. I think I’m sleep deprived. But I think you see where I’m going with this.

We’ve done the same thing; our checking account is with a local institution, but our emergency fund is at Vanguard in the tax exempt money market fund. We deposit money there every month, and I have an automatic transfer set up from the emergency fund into our “longer term” savings in a Target Retirement fund.

The Target Retirement funds give us the security of a reasonable asset allocation, and automatic rebalancing. We can adjust the allocation to our risk tolerance by picking among the different retirement dates.

Honestly, I don’t think investing in stocks is gambling (in the long term, it certainly is in the short term regardless of how much you research and how much due diligence you do, you can’t account for irrational behavior) and in a sense I do invest in them anyway (that’s what a mutual fund is), I’m just not into single stock investments outside of my Roth… yet.

I think the index fund is largely what Jim is looking to do. From the the tone of the post, it doesn’t seem like his risk tolerance is near ready to invest in individual stocks.

I think the most important thing is to understand your investments. Start off with a small amount of money until you are comfortable, then gradually increase your investments.

The way I read it, anyone that doesn’t have the time and commitment to appropriately analyze the investments they make is speculating, not investing, and would be better off in the long term putting their money in an index fund.

The stock market has recently seen a relatively strong bull run. Over the past 4 years, the S&P500 is up about 55%. There was a relatively steady climb over the last 6 months, from 1225 to the current level, a gain of about 14% (28% annualized if things kept up at that rate).

What I think you should consider is whether you’re making this change simply because of this recent good performance. Personally I have most of my money, retirement and otherwise, invested in the stock market right now. I think it makes sense for me based on my age and circumstances, but I would also classify myself as having a relatively high risk tolerance–if the market had a correction, dropping 10% or even 20% next week, it wouldn’t bother me much at all, and I’d leave my investments where they were (I might even put more in). How would you feel if that happened? Would you pull your money out at that point?

The situation you want to avoid is chasing past performance, and exceeding your risk tolerance. A lot of people look at a big run up in the stock market, say to themselves “I can’t afford not to get those returns!”, and end up putting their money in at that point, expecting the big returns to continue. Too often that ends up being near a market “top”, and they see much lower or even negative returns after that, and if they’re not able to tolerate that downside risk, they end up pulling their money out after the market has dropped, even though it very well may be close to a market “bottom”.

I’m not trying to scare you or advise you not to invest in stocks–I’m just saying it’s good to know yourself and choose an investment strategy that will work for you. Buy and hold is a perfectly valid strategy, but if you won’t be able to stomach that strategy emotionally, you might want to diversify some of that money into other asset classes so that a stock market swing won’t tempt you to abandon your strategy at the worst possible time.

If I was in your position, I’d probably invest in a no load fund. Such a fund could be QQQQ or any other index fund. There are normally little to no fees and the results are normally the same if not better!

I’d look into asset allocation index funds.