Investment Vehicles

Although it's going to be a very long time before I actually start making adult money (graduate school being in my future) I really enjoy trying to figure out how best to save and invest.

An update on STAR: growth has slowed, but it's still on an awesome pace. It's earned about 8.8% over the nine months that I've had it (that's a compound annual growth rate of 16%!)


I've been thinking recently about how, exactly, it would make the most sense to invest money. Let's assume I already have an emergency fund set up in a savings account, and that I'm contributing to a 401(k) and a Roth IRA (although, as I mentioned earlier, I'm not entirely sure that I like the Roth). We'll also assume that I have plenty of investible income (although, of course, that's a very optimistic premise).

First of all, maxing out any employer match is a priority. That's free money.
Chances are, my 401(k) isn't going to be in the exact funds I'd prefer. For this reason, the next place to put money will be the IRA (this would also be a good time to fund the HSA, if I have one).
Once the IRA is maxed out, then it'd be best to go back to the 401(k).

To my knowledge, there aren't any other easily-available tax-advantaged accounts to cover, so anything left will have to go into a regular old brokerage account. I wouldn't mind having some taxable investments, honestly, because then I can withdraw them before retirement age.


I want to spend a moment on IRA types, too. In the beginning, it looks like the Roth is the best option. Two reasons - first, I'm not making enough at the moment to pay much income tax, so deferring the tax advantage until I have actual income will be really beneficial. Second, unlike in a traditional IRA, the dividends in a Roth account aren't taxed. Since these early dollars (once they're compounded, at least) are the most valuable dollars I'll invest in my life, it makes sense to let them, more so than later dollars, earn tax-free.
Later, at the height of my earning years, it may make more sense to be contributing to a traditional IRA to avoid paying income taxes on that money. Being closer to retirement age will also mean that those dollars have fewer years to be impacted negatively by taxes on dividends.