You’ll read a lot in the personal finance community about the perfect ordering of how you should invest your money in investments.

Such investing strategies typically goes like the following:

1. If your employer has a 401(k), invest in that first.
2. Next, put you money in either a Roth or Traditional IRA.
3. Finally, open a regular brokerage account and put any money left over in it.

The strategy above is a sound strategy, no disputing that, but it also makes investing kind of boring and a bit like a self retirement tax, especially for those very young and still in college. It’s hard to build passion for an activity when you know that its main purpose is for when you are very old and less active.  To me, this seems boring and lackluster.

 

My Young Investment Strategy:

In the past, I have followed a different path when it came to my investing strategy, and it looked like the following:

1. Buy stocks in a regular brokerage.
2. Buy stocks in a Roth IRAs.
3. Participate in a 401(k) when available.

That’s right, my investing strategy was basically opposite the common wisdom of today!  Back when I first started working, the companies I worked at didn’t have a 401(k), so that made it easy to move 401(k)s to position number three, and while a Roth IRAs were interesting, for a teenager it seemed to distant of a goal (although my viewpoint of Roth IRAs has dramatically improved since then).

Another advantage of the above teenage/college age investing strategy sequence is that it made investing fun.  It was fascinating watching stocks that I owned appreciate in value!  I still remember the first stock that I owned that doubled (EBAY) and how excited I was when it did so!  I had an uncle that would buy a few shares of dividend stocks for me as a child, and receiving “free money” from the dividend stocks was exciting for a kid.

Okay, it wasn’t free money, but back when I was a young child, dividends checks that would come by mail seemed like free money!

Every quarter I was very happy to take all of the checks to the bank and have them deposited.  Even though the dividend amounts wouldn’t be considered a lot of money to adults, to a kid it was!  I actually felt like a big deal going to the bank with my parents to make my deposits.  This strategy (that I really grew into, thanks to my uncle) helped make me a more financial focus individual today.

 

How Does My Investing Strategy Look Today?

Today, my investment strategy looks much more closely to the typical model:

1. 401(k)
2. Regular brokerage account
3. Roth IRA.

Yes, a Roth IRA is still my third choice, although I’ve been thinking hard and long about moving that up to position number two.  A Roth IRA has too many benefits for it to stay at my third option.  In fact, the structure of a Roth IRA is so flexible that I use it as both a dividend tax shield and a stealth emergency fund.

So while I agree with the common knowledge of the best way to invest your money, I, myself do not follow it to 100%.  I especially think that young people should dabble a small percentage of their money in a stock to two, but to teeth on the process.  Investing in stocks is complicated, but if done with a small amounts (perhaps a thousand dollars), it can be a great learning tool and a lot of fun both at the same time.

Bests,

MR