I’m back today for a quick ‘honorable mention’ from my recent unofficial ‘TOA Organizing Awards’ series.
For giving me a simple investment framework
Mr. Money Mustache - 'News Flash: Your Debt is an Emergency!!'
This blog post breaks down investing decisions into a simple framework of guaranteed return against the investing timeframe. The best ‘investment’ is paying down debt because the ‘return’ of not having to pay additional interest is guaranteed. Next is the little old savings account that offers a non-zero (but effectively zero) return because there is a non-zero (but effectively zero) risk. After that comes the safer short-term investment – like a bond fund – for upcoming large purchases that come with a little risk. At the end is the stock fund – the most volatile investment – designed for those able to wait decades before cashing out. This investment’s risk increases as the timeframe shortens.
To put this concept into action, I put my money through the following progression. The money keeps moving down a step until I answer ‘yes’ to a question below – at that point, I simply carry out the action implied in the step:
1) Do I have any interest-generating debt to pay down?
2) Do I have enough cash in savings to cover six months of expenses?
3) Do I have any upcoming large purchases I should save for in a bond fund?
4) Put all remaining dollars into a stock market index fund.
