Five Practical Steps You Can Take to Improve Your Investments in 2018

It’s a brand new year, and with it comes a brand new opportunity to get your investments on track.

And here’s the good news: You don’t necessarily have to make big changes in order to have a big impact. In fact, the sooner you start taking action, the less you’ll actually have to do, since each action will have more time for its benefits to compound.

The flip side is that procrastinating will only put more pressure on you later on to make even bigger changes. All the more reason to start now!

With that in mind, here are five practical steps you can take to improve your investments in 2018.

1. Get specific about your goals.

The standard investment goal is “retirement.” You know, that thing you’ll finally get to do when you’re old and gray and no longer have to drag yourself to a job you hate.

Exciting, huh?

There are a lot of problems with the standard view on retirement. First, it assumes that everyone follows the same linear path. Second, it’s not inherently tied to anything you actually want to do — it’s all about getting rid of something you don’t like. Third, it’s incredibly vague and distant, which makes it hard to stay motivated.

That’s why I like to talk about financial independence instead.

Financial independence is simply the point at which you’re free to make decisions based on what makes you happy rather than what makes you money, and it has a few big advantages as your major investment goal:

  • You can reach it at any time.
  • You can achieve partial financial independence, which is simply the ability to do something like go back to school, switch to a single income, start a business, or change careers because you have the financial resources to get you through the temporary step back in income.
  • You can achieve full financial independence, which is the point at which you no longer have to earn money (which is different than no longer working).
  • It’s inherently tied to things you want to do, like traveling, spending time with children, or doing work you love.

So, before making any investment decisions at all, spend some time thinking about what financial independence means to you. What would you do with your life if income was no longer a factor? Or if you simply had the flexibility to temporarily live with less income?

If you can set specific goals that excite you, it will be a lot easier to make investment decisions that help you get there.

2. Focus on the one thing that matters most.

Until you’ve been investing for a decade or more, there’s only one factor that has a significant impact on your success: how much you save.

You can get everything else wrong and it will barely matter as long as you save enough money. And on the flip side, you can choose the best investments in the world and it won’t matter if you aren’t putting enough money into them.

And this is really good news for two main reasons:

  1. Unlike the stock market, your savings rate is directly under your control.
  2. You can take the pressure off yourself to pick the perfect investments, since that matters far less than simply saving enough money.

So, what are some simple ways to save more money?

First, look at your 401(k) employer match. Taking full advantage of that match is the easiest and most effective way to maximize your contribution.

Second, consider using your tax refund to fund an IRA. You can contribute to an IRA for 2018, and you also have until April 18 to make a contribution for 2017. If you’re married, your spouse can contribute another $5,500. And anyone 50 or older can contribute an additional $1,000.

Third, consider setting reminders to increase your total contribution across all accounts by 1% of your salary every year. So if your annual salary is $50,000, you would increase your total annual contribution by $500 each year. That 1% increase shouldn’t affect your budget too much, and by consistently increasing your contributions you can really accelerate your path towards financial independence.

However you do it, saving more money will usually have a bigger positive impact than all of the other steps combined.

3. Prioritize the right investment accounts.

Once you’ve committed to saving all this money, it only makes sense to contribute it to the accounts that will help it grow the fastest. Specifically, the accounts that offer the biggest tax breaks for your specific situation, since less money spent on taxes means more money in your account earning decades of compound returns.

So, how do you know which investment accounts to prioritize? This article has all the details, but here’s the quick version:

  1. Once again, taking full advantage of your employer match should almost always be your first priority.
  2. If you’re eligible to contribute, and if you can afford to pay your medical bills elsewhere, a health savings account may be the next best option.
  3. The more you make, the more you might want to prioritize tax-deductible contributions to a 401(k) or traditional IRA over after-tax contributions to a Roth IRA. And vice-versa.
  4. Even if you aren’t a high-earner, there are still some unconventional reasons to choose a traditional IRA over a Roth IRA.
  5. If you make too much for regular contributions, consider a backdoor Roth IRA. Or even a .
  6. Once you’ve used up all your tax-advantaged accounts, a taxable investment account is a great option.
  7. Whole life insurance is almost never a good investment.

4. Simplify.

When it comes to choosing investments, simpler is often better. Both because it makes your life easier AND because it usually leads to better returns.

Rather than trying to pick stocks or getting caught up in the Bitcoin craze, both of which will take time, add stress, and, in all likelihood, end up in disappointment, you can stick to boring but effective index investing and dramatically increase your odds of success.

And if you really want to simplify, you could consider using a target-date fund or robo-advisor that provides a completely diversified investment portfolio within a single investment.

The bottom line is that investing isn’t supposed to be exciting. Sticking with a handful of high-quality, low-cost index funds won’t make for a fun story, but it’s more likely to get you where you want to go.

5. Ask for help.

Finally, if investing feels confusing or overwhelming, don’t be afraid to ask for help.

There are many websites and online communities designed to help you out, and if you’re really stuck you could even consider talking to a fee-only financial planner. There are a number of good, objective financial planners willing to help no matter how much money you have.

While the best investment plans are almost always simple, it’s not always easy to sort through all the options available to you and figure out exactly what you should be doing. Just remember that you’re never alone and you should never hesitate to raise your hand and ask for help.

Matt Becker, CFP® is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families. His free book, , guides parents through the all most important financial decisions that come with starting a family.

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