How To Invest Your Money and Retire Early

how to invest

The name of my website is Rich on Money, so naturally, I should have something to say about how to invest money.

I do.

For those that don’t know me, I’ve been in the U.S. Air Force for 18 years.  I saved and invested well, the slow and conservative way (boring, but anyone can do it).  I saved up a decent amount, allowing me to invest in real estate using cash.  This let me reach financial independence a few years ago with 20 single family homes paid off.

I did this while my wife was a stay-at-home mom.

I have no debt.  I believe that’s been a big part of my success.  Not every investor, especially real estate investors, would agree with that, but it’s worked for me.

Consider it.  It has also brought me great peace of mind.

How to invest is strikingly simple.  Mainstream media unnecessarily complicates it for us.

Here I share my approach to money, specifically debt and investing.  I then detail exactly how I invest my money.   I do my best to explain why I invest my money the way I do, so it can help you make wise investing decisions for yourself.

When I was starting out in my financial life, I wasn’t sure how to invest.  I read every investment and finance book out there.

I worked at Fidelity Investments as a stock broker and observed what lots of high net worth investors were doing.  I also studied lots of books on psychology and behavioral economics.

The results of what I have learned over the last 20 years are below:


Don’t bother investing money when you’re still in debt.  Lots of people try to invest in the stock market or get involved in real estate while they are still in debt.  In fact, some of them invest in real estate as a way of getting out of debt.  BAD IDEA!

I recommend getting out of debt first, then focus on how to invest your money, then real estate.  I know some people that have done well with no money down real estate investing, but I know more people who have screwed it up and made things worse for themselves.

Get out of debt, then avoid it like the plague.  No new cars, expensive furniture, timeshares, Gucci bags, etc.  Don’t get a new iPhone every year.

Easier said than done, right?  Here are a few steps.

Change Your Mindset.  Your frame of reference towards money and spending has to change.  You need to transform yourself from a consumer to a saver.  Consumers get further into debt.  Savers put money away for the future.

Consumers enjoy life now.  Savers think about enjoying life later.  That later, however, eventually comes.

My favorite book when it comes to paying off debt is Jim Collins The Simple Path to Wealth.  His methods are quite similar to mine.  Interestingly enough, I was an editor on his book!

Emergency Fund.  One of the early steps to get out of debt is to have an emergency fund.  Have enough cash in the bank for three months of living expenses.

Systematically Payoff Debt. Next is systematically paying off your debt.  There are different schools of thought on this.  Some people believe it’s psychologically the easiest to pay off the smallest debts first.   That was you see the progress as some of these small loans get eliminated quickly, and it’s encouraging.

I think about it more logically and believe in paying off the debt with the highest interest rates first.  For me, it’s all about how much money I’ll save on interest by getting rid of this debt.

Some people have referred to this as the debt snowball method.  In any case, you find a way to pluck off your debt, one by one, until nothing remains.  You could argue about the method all day long.  The important thing is to do it.  Get rid of your debt.

Fund Retirement Accounts.  Take full advantage of all retirement accounts.  This is how to invest 101.  Establish your IRAs, 401ks, TSPs, and anything else available to you.  See if your employer has matching and be sure to get it.  A good starting point is 15% of your income goes to this.  The ultimate goal is to fully fund these.

IRAs are available to anyone with earned income below 70 1/2 years old.  401ks or TSPs are available through your workplace.  You can double-dip and contribute to an IRA and 401k or TSP.

If you are interested, I have a detailed explanation of IRA, 401k, and TSP programs.

how to invest pay off mortgage

Extra Credit: Pay off Mortgage Early.  Who thinks this is insane?

This is advice I saw in Dave Ramsey’s book, The Total Money Makeover.  For some reason, it really made sense to me, and I did it.  I paid off a $280,000 mortgage in about 6 years.

Some of you will undoubtedly find fault in paying off a mortgage with a low interest rate, thinking you could find better use for that money.

But let me tell you, there is a huge psychological benefit to having that last debt burden paid off.

Not only that, your savings accumulates so much faster once that pesky mortgage is paid off. It’s the best feeling ever!

I’ll even go a step further, and talk about how I invest in real estate.  I  bought my real estate investments with CASH.  No mortgages, PMI, interest, or other B.S. fees

I’ll let you decide if you pay your mortgage off, but it worked for me.

When your retirement accounts are fully maxed out, open a normal brokerage account, and invest your additional savings into an index fund.


A key element of how to invest well is savings rate.  This is how you get out debt fast, and then how you build wealth quickly.

Knowing how to invest doesn’t mean jack until your debt is gone and you actually have money to invest.

Here is the key to saving.  Don’t laugh at its simplicity.  That’s what makes it powerful.

  1. Find ways to earn more
  2. Find ways to spend less
  3. Invest the difference

I think most people understand the concept of spending less, and that is a helpful concept, but it has a limit.  You can only optimize your spending to a certain degree, and then you’ve done the best you can.

The trick at this point is to find ways to make more money.  I think most people accept that they can only make a certain income.  Get out of this mindset.  How much money you make is something you control more than you think.

Some considerations are finding a way to get a raise, switching to a job that makes more money, or having your spouse work.

Side hustles are very common for people paying off debt and trying to get ahead.  If you haven’t heard the term side hustle, it’s a side job you find or create to make extra money on top of your full-time or part-time job.

I know what your objection is.  Your full-time job and family life takes up all your time, and you have no time to devote to something like this.  I hear you.  I feel the same way.

But I’ve been around successful bloggers and business owners for a while now, and I’ve studied what the most successful ones have done and how they’ve done it.  When I say “successful”, I mean those that make more than $10k a month.  Some make more than $1,000,000 a year.

Most of these people had busy full time jobs with busy family lives and they put long hours, at least 40+ extra hours a week, into their side hustle businesses for several years until they saw the huge success they have now.

My point is, we can all find ways to make more money, but we have to stop whining about how busy we are and how hard it is.  It can be done with discipline and sacrifice.

Maybe we need to watch less Netflix.

You should be shooting for saving a large portion of your income.  The traditional advice of saving 10% for retirement is nowhere near enough.  I’m talking more than 50% of your pay should go to savings.  Yes, it’s possible.


When it comes to how to invest, there is soooooo much B.S. out there. I’ve experimented with many different forms of investing, and failed.

  • I learned how to invest through reading stock market charts and look for “breakouts”
  • I invested with Bear Stearns, who gave me some rich guy in a big office who invested my money for me in stocks and charged me 1% (they went bankrupt while my money was parked there)
  • I worked at Fidelity Investments and saw how they “pushed” their overpriced investments on people
  • I heeded the brilliance of my bank’s investment advisor who convinced me to invest in an aggressive growth index fund and lost 50% of my money in one month. Best financial lesson of my life.
  • I invested in new construction at the height of the real estate bubble! That sucked!

I will give you the best advice for how to invest after paying off debt. It’s the advice I’ve heard many times since I was a teenager, but was always hoping for something much sexier that could get-me-rich-quicker.

Invest in Index funds with low fees.


That’s it.

Buzz kill.  You were expecting something much more profound.  I’m sorry.

This is the advice that Warren Buffett has always offered. He says, if you don’t have time to make a 40+ hour-a-week career of studying and watching the market closely, you are better off putting your money in the S&P 500 Index and not touching it.   In fact, here are the instructions he has put in his will for how to invest his inheritance:

90% S&P 500 Index (he recommends Vanguard) and 10% cash in short term government bonds. If it’s good enough for Warren’s wife, it’s good enough for me!

Read my post on 9 Proven Ways to Boost your Index Fund Returns

Having bonds in your portfolio usually depends on your age, risk tolerance, and how close you are to needing the money you are investing.  If you consider yourself far from retiring, I would considering not using bonds yet.  Just my personal feelings.  I have a high risk tolerance in this regard.

It seems Warren Buffet isn’t even sure Berkshire Hathaway, the company he built that made him the richest man in the world, will continue to outperform the S&P 500 over the long term, and he’s right. Statistically, this is extremely difficult to do, no matter how smart or savvy you are.

I have been lucky enough myself to have followed Warren’s advice with all my retirement accounts and some of my normal investment accounts, and have done well since 2000.

I would argue that the cases where certain funds or stock-pickers beat the S&P 500 over certain periods of time is largely attributable to luck.  Nobody wants to believe that (especially “successful” fund managers), but it’s true.  The market will beat investors over the long term most of the time.  That’s been statistically proven.

I’m not going to try to figure out which genius or “lucky trader” will beat the market in the future.   I’ll most likely lose money trying.

The first finance blog that I ever ran across and inspired me to become a finance blogger myself is Jim Collins Stock Series.  It is the best how to invest summary I have ever seen.

The essence of what he says is that investment advisors suck, and you should invest all your money in Vanguard Total Stock Market Index for the rest of your life (VTSAX).

So wait Rich, Which is a better index to invest in? S&P 500 or Total Stock Market Index?

This is a complicated question to answer.   First, you have to understand, there is some overlap here.  The Total Stock Market Index contains about 75% S&P 500 Index companies.  The other 25% is small and mid-cap stocks, so some argue the total stock market index is more diverse, with smaller companies also in the index.  I wouldn’t argue it’s much more diverse, as you’ll see below the difference in performance is very small.

Which will perform better over the long term is anyone’s guess.  Historically, the performance of both have been closely correlated.  They are so closely correlated, that the difference in returns between the two is negligible.  You are going to be fine investing in either one, and anyone claiming one is clearly superior to the other is simply making a bold guess.

Returns S&P 500 (index) Total Stock Market (VTI)
1-year 17.81% 18.18%
3-year 9.80% 9.25%
5-year 15.24% 15.15%
10-year 7.25% 7.44%
15-year 8.40% 8.88%

The main point is, when faced with how to invest, index funds that follow the market with low fees is the best way to go.  Don’t mess around with anything else.

This post will tell you what the best index funds are and the effect of fees on your portfolio.

how to invest where to invest


For my brokerage accounts (non-retirement), I used to put my money in the USAA S&P 500 Index funds.  The fees for this fund is .25%, which is a bit higher than the .15% Vanguard charges.  If you have more than $800o to invest, Vanguard’s fee drops to .04%, which is a large savings over the USAA account.

I recently switched to Vanguard for all my investments outside of TSP.  The lower fees, even when we are talking about fractions of a percent, can make a large difference over a lifetime of retirement savings.

There is nothing wrong with having your investments at Fidelity or Schwab.  They also have funds with low fees.  Do be careful, however, because they also have investments with higher fees, and may try to talk you into it!

For my TSP account, I spent most of my career invested in the C fund, which mimics the S&P 500.  About 1 year ago, I switched to 75% C fund, 25% S fund (small cap) in an effort to mirror the Total Stock Market index.  This is not a big change, and will likely yield a small difference over the long run.  It gives me exposure to smaller companies.  Whether that difference is positive or negative is anyone’s guess!

Read my page on TSP, which covers everything.  It goes over the recent withdrawal changes and has my spin on things.

For my IRAs, in the past I used the USAA S&P 500 Index, but have now switched to Vanguard Total Stock Market Index (VTSAX) because of the lower fees.  I had to switch my account to Vanguard to get these lower fees.  USAA didn’t offer Vanguard funds.

How to invest choosing between traditional vs. Roth IRA is always a hotly debated topic among the financial independence gurus.

I spent most of my life investing in Roth IRAs.  Usually the question you ask yourself is, do you think you will pay more in taxes now or in your retirement years.  As a military member, a large portion of my paycheck is not taxed, so I figured now was the time to invest in the Roth IRA, having a lower effective tax rate.

I stand to have a large amount of taxable income from real estate in my retirement years.  This will likely give me a higher tax bracket than I was during my military years.  This is not the norm for most retirees, so I figured a Roth IRA was smart for me.

I pay lower taxes because of my military paycheck having tax benefits, and I stand to have a higher income in retirement due to large passive income from real estate that will be paid off.


Then came along Go Curry Cracker’s famous post on why Roth’s suck!

While my argument for choosing a Roth IRA makes sense and is in line with what most literature on Roth IRAs talk about, if you read this article carefully (it’s complicated), he argues that because of the “Last Dollar Principle” of contributing to IRAs vs. withdrawing, most people lose money in the long run by contributing to a Roth IRA.

It’s not so much what their tax rate will be in retirement, but what their effective tax rate will end up being.  Apparently, it’s lower than we think it will be!

He also argues that the tax savings money freed up by contributing to a traditional IRA (Or traditional 401K for that matter) could be invested, and those profits could make a large difference in your retirement.

Taking that into account, and with my rising passive real estate income, I’ve switched from Roth IRA and Roth TSP to the traditional versions of each.

It’s actually possible to contribute to both traditional and Roth accounts in the same year, but you can’t go over the maximum contribution amount.

An example of this would be contributing $9,250 to a traditional 401k and $9,250 to a Roth 401k, thus not exceeding the $18,500 maximum for 2018.

It’s always a good idea to try to figure out which will save you more money, but in the end, we are guessing.  The bottom line is, taking full advantage of retirement accounts is superior to not using them.

If you are not necessarily sold by how I invest in my portfolio, and want to consider several other options, I’ve found no better post on this then the one by White Coat Investor titled 150 Portfolios Better than Yours.


A key tenet of how to invest wisely is never try to time the market and sell your portfolio when stocks crash.  Stocks will drop dramatically several times throughout your lifetime.

Accept it, embrace it, and don’t freak out when it happens.

Most recently, this happened in 1987, 2000, and 2008.  Trying to “time the market” by selling during the fall and buying back in and some point almost always results in far worse returns than simply riding out the correction.  The market always bounces back.  Relax, and wait.

Trying to sell when stocks are on the way down, and then buy at the bottom and ride the wave back up is calling market timing.  It’s almost impossible to do with any success.

Why is timing the market correctly so hard?  You have to be right twice.   Not only do you have to sell early enough in the drop, but you have to buy before it’s comes back up too far.

There is no way to know how far things will drop, and when the market is actually coming up again.  Most people, including experts, mess this up when they try.  Don’t.

Trust me on this.  Simply ride out these corrections.  You can put your feet up on the table, crack open a beer, and wait for the market to come back.  While doing so, you can laugh at those around you freaking out, selling their portfolios, saying it’s the end of the world, and making huge financial mistakes in their attempts to time the market.

Read more about why timing the market is a bad idea.

how to invest money


Lots of people read the Wall Street Journal, Money magazine, and watch CNN Money interview CEO’s and listen to Jim Cramer talk about stock moves.  People believe by consuming this type of media they will know how to invest.  They won’t.  It’s all irrelevant.  The info you are getting the market already has.  It’s already reflected in asset prices.

Know anyone who watches the 24 hour news cycle for the stock market?  Most places on Wall Street do.  It make them look like they are in-the-know.

Should you closely monitor it so you don’t miss that breaking story that will help you know exactly when to sell or buy?

Hell no.

If you ever do see it on, recognize it for what it is.  It’s meant to drive people to buy and sell stocks making money for big brokerage firms and hedge funds.

It’s meant to sell magazines and newsletter subscriptions, meant to promote investment advisors, and meant to keep you glued to the tube!  They want to convince you they know better than anyone how to invest your money.

Here’s some of the typical headlines you will see:

“Dow has best day in two weeks”

“Worst day for stocks since December 1”

You’ll inevitably hear about the newest IPO, latest merger plans, or something else that will drive poor investment decisions.

Do you realize how meaningless these headlines are?  Turn it off.  If you can’t turn it off, recognize it for what it is and have a good chuckle.

Betting on the movements of individual stocks is a loser’s game.  Nobody knows when or for how long they will rise or fall.  Advisors, blogs, newsletters, brokerage firms, and anyone else out for a buck wants you to believe this is information they can accurately predict.  They can’t.

You are better off going to a palm reader.

Save yourself a ton of time (and money), and ignore all that stuff!  You are far better off in an index fund that you never sell then you are jumping in and out of stocks based on all the media hype you are being spoon-fed.

If you play this game, you’ll lose money.

Someone will make money, maybe your advisor or your brokerage firm, but not you.


Understanding the psychology behind investing is important in controlling your impulses when it comes to your portfolio.  It has been proven that the pain of seeing losses is twice as bad as the joy of seeing gains in a portfolio.

Why is this important?


On an hourly or daily basis, stocks move up and down for reasons that aren’t really important.  You will see large moves during this time that has nothing to do with the health of the underlying stock or security.  It’s something the market calls “noise”.

This “noise” is the pointless up and down movements in the market over short time periods.  If you observe these moves and watch your portfolio move up and down with it, this can be very painfully psychologically.

If you ignore these short term moves, and only focus on the moves over longer periods of time, say months or years, you are seeing more significant moves that actually reflect the health of that security.  These longer term price moves are what’s important to consider in how to invest.

In other words, you are not seeing the “noise” anymore, but the actual useful price movement of the security.

The more often you check your portfolio balances, the more dangerous and painful this is for you.  If you make a habit of looking at account balances every day, you will be discouraged and make bad decisions.  Some people will just stare at it on their smartphones throughout the day stressing out.  This is absurd behavior.  These movements have no meaning.

As an example, if a stock over a period of a year ended up raising in price 8%, that would be a good thing.  If you checked this stock every month, it had 7 up months and 5 down months.  If you were check this stock every week, it turns out it had 20 up weeks at 32 down weeks.

The moral is, if you stressed over the price changes every week, you would have been upset 32 times.  If you only checked once at the end of the year, you would have been happy once.

Looking monthly, or even yearly will drive better behavior.


There are lots of mutual or hedge funds being run by highly paid managers.  They want you to believe they know how to invest your money better than you can.  They want you to believe they are that special snowflake that will beat the market over the long run.

They go to the best schools and think they know investing better than anyone. Some of these funds outperform the market over stretches of 1, 3, or even 5 years.   These often become the most popular funds.  Here’s the problem.

Past performance has no correlation with future returns.  They know that, but they’re hoping you don’t!

It’s a huge mistake to think since a fund has performed well over the past several years, it will continue to perform similarly in the future.

The world doesn’t work that way.

The problem is, when you are looking at a menu of mutual funds offered by a brokerage firm, they may all appear to have pretty good returns over the past few years.

How come so many of their funds have such good returns?  Isn’t that amazing?

Why is that?

Because, you are only seeing the winners.  It’s called selection bias.  There were lots of other funds that were started, didn’t do well, and quietly closed.

They aren’t on the menu anymore!

It’s kind of like when you watch an infomercial at night, and the people being interviewed who used the no-money down course all made a fortune.  Nobody went bankrupt.  Imagine that.  Selection bias.

These winning funds aren’t outperforming the market because their managers are particularly talented or gifted in investing.   They outperform because their chosen strategy happens to fit the market at that particular time.  I’m saying it’s largely attributable to luck (ouch, someone is not going to like me saying this).

What is less likely is that that particular strategy will continue to work in the future.

It’s impossible to know ahead of time which mutual funds will beat the market over the long term.  Don’t try.

The percentage of mutual funds that beat the market over time periods exceeding 10 years is extremely small, and almost statistically irrelevant.  Don’t bother looking.  Invest your money in index funds instead.  Almost no funds beat the S&P 500 over the long term.


Never pay anyone or anything (computers) to invest your money for you.

I talked about how investing in an index fund is going to beat every investment advisor out there over the long term.  Why would you pay someone for trying and failing?

Some think they know how to invest.  Some just want to take your money and charge you unnecessary fees.  I don’t care which is which.  I ain’t paying either person!

They’ll say you need diversification.   The S&P 500 by itself or other similar index funds are all the diversification you’ll ever need.  If you decide you need to mix in bonds someday to hedge the risk, that’s fine.

Money managers incentives aren’t aligned with yours. Unfortunately, many are incentivized to sell you complicated investments with high commissions and fees.  Even if their services are fee-based, more than nine times out of ten, they will not beat the S&P 500 over the long term.

We don’t need money managers or investment advisors.  We’ve got index funds.  It’s too easy to invest in today’s world.  Myself and many, many other will be glad to help you on that journey.

I’ll say it again.

Don’t pay anyone to invest your money for you!

No one cares more about your investments than you do!

Wow, I should tweet that line!


I only buy properties that will make at least an 8% return on investment.  I pay cash for single family homes and then rent them out.  I currently have twenty properties that are paid off.  Check out my Complete Guide to Real Estate Investing.

That’s how I invest money.

If this sounds like it might be up your alley, subscribe to my blog.  I’ll be going into much deeper detail on exactly how to invest.

Rich on Money