Dave's Investing Philosophy

11 Minute Read

We all know how to deal with debt—pay it off! Investing, however, is more complicated, and most people have questions about how and when to do it. But because everyone’s situation is different, there’s no good way to answer those questions and take everyone’s unique challenges and goals into account.

We can, however, share Dave’s own strategy for long-term wealth building. It’s important to note, though, that you shouldn’t copy Dave’s plan simply because that’s what Dave does. You’re responsible for your own retirement plan—never invest in anything you don’t understand.

You can get answers to your personal investing questions by working with an investing professional. In fact, an important part of any good investing strategy is working with a pro to create your retirement plan. Your investing professional will explain your investment options to you in simple terms so you can make informed decisions with your money.

Baby Steps: Don’t Invest Before You Complete Baby Step 3

Your income is your most important wealth-building tool. As long as it’s tied up in monthly debt payments, you can’t build wealth. And if you begin investing before you’ve built up your emergency fund, you’ll end up tapping your retirement investments when an emergency comes along.

If you’re still on Baby Steps 1-3, be patient. Put off investing for now. After all, avoiding a financial crisis with a fully funded emergency fund and paying off debt is a fantastic investment!

  1. Save a $1,000 starter emergency fund.
  2. Pay off all debt using the debt snowball.
  3. Save 3-6 months of expenses for a fully funded emergency fund.
  4. Invest 15% of household income in tax-advantaged retirement accounts like a 401(k) or Roth IRA.
  5. Save/invest for your kids’ college.
  6. Pay off your home early.
  7. Build wealth and give! Continue to invest in mutual funds and real estate.

Investing for Those Just Getting Started

Once you’ve completed the first three Baby Steps, your next goal in Baby Step 4 is to invest 15% of your income for retirement. You’ll get the most bang for your investing buck by investing through pre-tax investment accounts like your 401(k), 403(b), TSP or Traditional IRA and tax-free investment accounts like a Roth IRA and Roth 401(k).

If your employer matches your contributions to your 401(k), 403(b) or TSP, you can reach your 15% goal by:


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  1. Investing up to the match in your 401(k), 403(b) or TSP
  2. Fully fund a Roth IRA for you (and your spouse, if you’re married)
  3. If you still haven’t reached your 15% goal, keep bumping up your contribution to your 401(k), 403(b) or TSP until you do.

Mutual Funds

Dave invests in mutual funds in his retirement accounts. Through mutual funds, you can invest in many companies at once, from the largest and most stable, to the new and fast-growing. Spreading your investment among many companies helps you avoid the risks that come with investing in single stocks. Mutual funds also have teams of managers who choose companies for the fund to invest in, based on the fund type.

Your employer-sponsored retirement plan will most likely offer a selection of mutual funds, and there are thousands of mutual funds to choose from as you select investments for your IRAs. Dave divides his mutual fund investments equally between each of these four types of funds:

  • Growth
  • Growth and Income
  • Aggressive Growth
  • International

Your investing professional can help you choose a diversified mix of funds that take your retirement savings goals and risk tolerance into consideration.

Exchange Traded Funds (ETFs)

ETFs are similar to mutual funds with some important differences. They are baskets of single stocks designed to be traded on the stock market exchanges. ETFs don’t employ teams of managers to choose companies for the ETF to invest in, and that often keeps their fees low. Your investing professional can give you an in-depth explanation of ETFs so you can decide if you should consider them for your retirement strategy.

Single Stocks

Dave does not invest in single stocks for his retirement. Single stock investing is like putting all your eggs in one basket because the value of a stock depends on the performance of an individual company. It’s a big risk to take with money you’re counting on for your future.

An investing professional can answer your questions about single stock investing to see if it has a place in your overall investing strategy.

Certificates of Deposit (CDs)

Dave doesn’t use Certificates of Deposit for his retirement investments. Like money market accounts and savings accounts, CDs have low interest rates that don’t keep up with inflation and aren’t suitable for long-term money goals that take more than five years to reach, like investing for retirement, which actually takes decades. But those kinds of accounts can be useful for setting aside money for a short-term goal such as a large purchase.


Dave does not own any bonds as part of his retirement strategy. Bonds have a reputation for being "safe" investments, but their values rise and fall like stocks and mutual funds.

You can find out more about bonds, how they work, and if they are appropriate for your retirement plan by talking with your investing professional.

Fixed Annuities

Dave does not include fixed annuities in his retirement plan. They are complex accounts sold by insurance companies and designed to deliver a guaranteed income for a certain number of years in retirement. Annuities are often expensive and charge penalties if you need to access your money during a defined surrender period.

For a better understanding of annuities and their pros and cons, talk with your investing pro.

Variable Annuities (VAs)

Variable annuities are also complicated investment accounts, and Dave does not have any in his retirement plan. VAs are insurance products that can provide a guaranteed income stream and death benefit. While you lose much of the growth potential that comes from investing in the stock market through mutual funds, VAs do provide an additional option for tax-deferred retirement savings if an investor has already maxed out his 401(k) and IRA savings accounts. Fees can be expensive, and VAs also carry surrender charges.

You can learn more about variable annuities and whether they are an option for you by consulting your investing professional.

Investing for College

Once you’re investing 15% of your income for retirement, you can start saving for your kids’ college. Remember, retirement saving comes first! Your kids will have options as they pay for college: scholarships, grants, part-time jobs—anything but student loans. But you will only have your retirement savings to get you through your golden years.

You will have some tax-advantaged college savings options that are similar to your retirement accounts. Education Savings Accounts (ESAs or Coverdell Savings Accounts) are simple and work like an IRA. You can also save for college through a state-specific 529 plan.

Each type of college savings account has its pros and cons, like income limits on ESAs and state-by-state differences between 529 plans. Your investing professional can help you decide which choice is right for you.


Long-Term Care Insurance (LTC)
Long-term care insurance will help you protect your retirement savings in the event you or your spouse requires extended skilled nursing care. The likelihood of your needing long-term care increases at age 60, but the age at which you buy a LTC policy is a personal decision. You and your investing professional can determine when you should incorporate LTC insurance into your retirement strategy.

Disability Insurance
Long-term disability insurance will replace a portion of your income if you become disabled and can no longer work. The cost of coverage depends on your occupation, so work with an independent insurance agent to find a policy that provides the coverage you need at a price that fits in your budget.

Short-term disability insurance is not necessary for most people since it only covers incidents that keep you from working for 90 to 180 days. A fully funded emergency fund will cover your expenses for that amount of time.

Life Insurance
A level term life insurance policy with coverage that equals 10-12 times your income will allow your family to maintain their lifestyle if you are no longer around to provide for them. Start with a 15-year policy—longer if you have young children.

Cash value or whole life insurance, on the other hand, is more expensive than term life insurance and is often sold as a way to build up your savings. But, when the insured passes away, the beneficiary only receives the face value of the policy and loses the money saved within it.

If you have cash value life insurance, Dave recommends you first get term life insurance, then cancel your whole life insurance. Work with an independent life insurance agent to find the right policy for your family.

Separate Account Managers (SAMs)

SAMs are third-party investment professionals who buy and sell stocks or mutual funds on your behalf. Dave does not work with SAMs on his retirement strategy because he invests in mutual funds that have their own teams of experienced fund managers who have long track records of above-average performance.

Real Estate Investment Trusts (REITs)

REITs are companies that own or finance real estate. Similar to mutual funds, REITs sell shares to investors who are then entitled to a portion of the income produced from the company’s real estate investments.

Dave prefers to invest in paid-for real estate bought with cash and does not own any REITs.

Thrift Savings Plan (TSP)

Employees of the federal government can save for retirement through a Thrift Savings Plan. A TSP offers many of the saving and tax benefits of corporate 401(k) plans. Your investing professional can help you choose investments for your TSP based on your retirement goals.

Biblically Responsible Investing

Biblically responsible investing is the practice of selecting mutual funds that only invest in companies whose business practices align with the investor’s beliefs. Dave does not use that approach to his retirement investments, choosing instead to focus on funds with a long track record of strong returns and maintaining a diversified fund mix.

Choosing your retirement investments solely because they align with your beliefs is a slippery slope. To be consistent, you would need to stop shopping at any grocery store or gas station that sells products you disagree with or find a new bank if yours contributes to causes you don’t wish to support.

It’s impossible to track every dollar you spend to find out how it is ultimately used, and the same goes for investing. Work with your investing professional to choose investments you can feel good about long term.

Investing Fees

The fees associated with investing are often confusing, but they are an unavoidable part of investing for retirement. Fees will also have an affect on your savings, so it’s important to understand how much you’re paying and why.

For example, most investing professionals are paid one of two ways.

  • A fee-based pro receives ongoing compensation based on a percentage of the assets they manage for you. Their pay rises and falls with the value of your assets.
  • A commission-based investing professional is paid up-front based on a percentage of the money you invest. That percentage varies from one investment to another.

Each arrangement has its pros and cons, and you can find trustworthy, client-focused professionals who use either method. However, if your investing professional doesn’t take the time to explain the costs of their services or the fees associated with your investments, that’s a huge red flag. Never invest in anything until you understand how it works, how much it will cost, and how that cost will affect your savings long-term.

Working With Your Advisor

Even though Dave has a thorough understanding of how retirement investing works, he still prefers to work with a pro. It’s an investing professional’s job to stay on top of investing news and trends, but their most valuable role is keeping their clients on track to meet their retirement goals.

And while a pro has more experience with investing matters, they also know their clients call the shots on their retirement strategies. A pro provides insight and direction, but their clients are the decision-makers. That means the pro focuses on answering their clients’ questions and giving them all the information they need to make good investing choices.

If you’re looking for an investing professional who is committed to helping you make informed decisions with your money, try SmartVestor. It’s a free and easy way to find investing professionals in your area today!

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