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I'm privileged/blessed. I'm 38, I have a healthy emergency fund, I max out my IRAs (mine and my wife's), and I am making a good bit of money above that every year now. What should I do with that extra money? What are my options?

My current best idea is to stick it into a dated retirement fund. A caveat thought is that I'm interested in starting a business at some point in the next 10 years or so, so I'm thinking that I can make that retirement fund dated for 2025 so that it's making better interest than just setting in my bank account but is not at risk of losing much money.

Is this silly? What should I be doing with that money?

  • Explain why you would want to stick it in a retirement fund, when you've already maxxed-out the tax advantages of IRAs and the like. Why would you not simply invest in mutual funds, e.g. index funds if you just want to invest and forget about it until you want the money? – jamesqf Jun 9 at 17:35
  • If you're going to start a business in 10 years, should you put the money in a 2030 TDF instead of 2025? – RonJohn Jun 10 at 3:14
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Obviously I'm assuming you don't have any medium- or high-interest debt or you would already have paid it off.

The only tax-advantaged accounts you mention are IRAs. What about a 401(k) or similar, or a health savings account? Does your employer offer such plans? Sometimes they offer free money (match).

The contribution limits on IRAs alone often don't suffice for retirement savings. So you should direct additional savings there at a level that gives you a solid path to your goals. Even if you can't do so entirely in tax-advantaged accounts, invest for your retirement time horizon.

Saving for other shorter-term goals (in non-retirement accounts so the money isn't locked up), like starting a business or buying a house, is a next great step (but secondary to funding retirement). In doing this, consider tax-efficient investments. A "2025 retirement fund" would probably be a bad choice because it's intended for near-retirees in tax-advantaged accounts and will throw off a lot of income (interest and dividends) that would be taxable to you.

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Putting funds into a 2025 target date fund (TDF) is certainly better than leaving it in your bank account, so moving it there today wouldn't be silly at all. However, since you'd be using a taxable account, there are probably better products designed specifically for taxable accounts than TDFs. But again, something is better nothing, so don't spend too much time fretting over which funds. You can switch funds at any time.

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If you feel like you're going to need the money at some point, put it into a liquid investment.

For low risk, you have premium savings accounts that can yield roughly 2-2.4%. Nothing too exciting but there is no downside risk and it's easy to transfer in and out.

For medium risk, you can choose from a range of ETF's, such as whole market ETF's, dividend ETF's, and sector based ETF's (or a blend of a few). You can also automate this process with robo-advisors. They take a 0.25% fee but you may prefer to have your account managed for you and, once again, it's easy to make transfers in and out.

For higher risk, you can invest in individual stocks. This doesn't necessarily HAVE to be higher risk, but an individual stock is generally more risky than a pool of stocks (i.e. an ETF or mutual fund). You can find lower volatility stocks with positive long-term returns. Dividends are a plus. Of course, then you have to go through the process of finding the stocks that fit your investment goals, so you may prefer an automated service.

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Consider the following options:

  • A Wealthfront 2.3% APR bank account
  • Investing in bond ETFs through TD Ameritrade, like BND or JNK
  • Crowdfunding sites where you can earn 5-8% interest.

Hope this helps.

  • Why it is voted down can voters identify the reason(s) – Neil Jun 11 at 13:52

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