Investing for your future doesn’t have to be complicated or intimidating. In fact, as we often say, the best investment plan is simple and boring.

Most people at the start of their financial planning journey begin by tackling the big, overarching question of what to do with their money. When we work with clients on this, we figure out the short-term needs: how to structure cash flow and cash savings and maybe tackle any debt. Once we establish the foundation with the proper short-term cash buckets, such as an Emergency Fund and Travel Savings, the next step is to start investing for the longer term. And this is where folks tend to get either excited or intimidated (or both) about how the investing picture will look. 

While there are many investment vehicles available, such as brokerage accounts or Roth IRAs (see: Individual Retirement Accounts), for some people it’s possible that their employer’s 401k/403b (or a SEP IRA for self-employed individuals) may be the only investment they ever need to manage. If you’re one of those people, don’t worry–you can still achieve your financial goals without feeling like you’re missing out on other investment options. In fact, investing in a 401k/403b or a Traditional/SEP IRA can be a great way to save for the long term and achieve your financial goals. Investing doesn’t need to be fancy; in reality, the simpler you can keep things, the better. 

Investing typically starts (and sometimes ends) with the employer’s retirement plan.

If you have something like a 401k through your employer, check to see how much you’re contributing to it. The maximum amount you can contribute to a 401k in 2023 is $22,500 ($30,000 if you’re age 50 or older). If you can manage to contribute the maximum each year, fantastic. While it differs for everyone, a healthy range for long-term savings is 15-20% of your annual income. Maxing out an employer plan like a 401k sometimes fully takes care of that savings percentage and then some. Otherwise, contribute as much as you comfortably can. If you’re self-employed, you may have other types of investment vehicles that make more sense for you, like a SEP IRA, Traditional IRA or Roth IRA. 

The main advantage of investing in a 401k or IRA, and the reason why this is usually done first, is that they offer tax benefits. Contributions to these types of retirement accounts are tax-deductible, which means you can lower your taxable income while also saving for your future. This is particularly advantageous if you’re in a high tax bracket (looking at you, New Yorkers and Californians).

Additionally, many employers offer matching contributions to their employees’ 401k accounts. This is essentially free money you can use to grow your retirement savings. Make sure to take advantage of any matching contributions offered by your employer, as it’s essentially an immediate return on your investment.

Another benefit of investing in a 401k or SEP IRA is that they’re easy to manage. These retirement accounts are typically managed by professional fund managers using well-diversified target date funds, which means you don’t have to worry about picking individual stocks or constantly monitoring your investments. Instead, you can focus on your career and other areas of your life while your retirement savings grow.

When to add in other types of investments.

Either along with, in addition to, or in lieu of (if you don’t have the options) your basic tax-advantaged, long-term investments, sometimes it makes sense to put your money to work in a taxable brokerage account. Unlike 401ks and IRAs, the taxable brokerage account allows you to grow your money by investing it while having the ability to withdraw the funds at any time. It’s a flexible option, but requires some knowledge of how investments work and careful monitoring. You also shouldn’t plan on touching the stock market investments in a brokerage account for at least five years because the risk of the market taking a dip is greater the shorter your time horizon is. Stay in the market longer for five years, and you can more safely expect positive returns. 

A brokerage account makes sense to do in tandem with the retirement funds if you’re investing for a more near-term goal that’s still several years out (e.g. a home purchase). Coming up with the actual investment plan for the taxable account requires some strategy and depends on your goals and financial situation. 

A brokerage account also makes sense to use if you are able to save more than the maximum amount into your retirement plan. For higher earners and/or people saving more aggressively for the long-term, we actually find that the taxable brokerage account can ultimately wind up being the biggest portion of a household’s nest egg because of the unlimited contributions, versus retirement accounts that have annual limits. 

Disclaimer: Sometimes it makes sense to start differently with investing.

Every person’s financial situation is unique, so it doesn’t always make sense to prioritize the retirement plan savings first. Here are a couple of reasons why it might be better to focus on something else first:

• You don’t have a sufficient amount of liquid cash savings (e.g. an emergency fund), and/or you have some upcoming big expenses within the next year or so. In this case, we usually advise dialing back on the retirement savings to build liquidity.

• There’s high interest debt to pay down, like credit card debt or a private loan. The interest rate on credit card debt is usually 20% or more, which will devour any sort of annual investment returns (likely closer to 6-10%) you’ll get from the retirement investments. Come up with a plan to pay off the high-interest debt first, including considering shutting off long-term investment contributions until it’s wiped out.

It’s possible that investing simply in your employer-provided 401k or a basic Traditional or SEP IRA can be a sufficient way to save for your future. While other investment options may be tempting, there’s no need to feel like you’re missing out if you only invest in these retirement accounts. By maxing out your contributions each year and taking advantage of any employer matching, it’s possible to build a solid nest egg for the long run. Remember, when it comes to investing, simple can be just as effective as fancy.