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Taxes serve to hinder your financial success system from working.  Therefore, selecting investment accounts in proper sequence is very important.  There are many different account types to consider, from 401(k) plans to Traditional and Roth IRA’s to taxable accounts.  An article we found on the Motley Fool website gives excellent advice on how to choose between these options.  Click here to view the article.

The particular investments you choose within these accounts are usually divided between stocks, bonds, and cash depending on your time horizon and/or risk tolerance.  When your time horizon is rather long, you'll typically have a larger amount in stocks and a smaller amount in bonds and cash.  With your time horizon shortening as you approach your target date, your investment mix should steadily move away from stocks and into bonds and cash.

Several mutual fund companies, such as Vanguard, Fidelity, and T. Rowe Price, have begun offering products built from low-cost index mutual funds which make these asset allocation adjustments for you.  In Vanguard's case, these products are called "Target Retirement Funds."  You simply select the Target Retirement Fund corresponding with the target date when you'll need to draw on the money, and all asset allocation adjustments from that point on are handled for you.  These solutions truly allow your investment program to cruise on "autopilot."  To learn more about Vanguard Target Retirement Funds, click here.

Some of you will be participating in company plans, such as 401k's and SIMPLE plans, and may not have these target date solutions as an option.  However, most plans do have low-cost index solutions for stocks and bonds, such as an S&P 500 index fund or total bond market index fund.  In this case, you could go through the steps of selecting a Target Retirement Fund from the link above, and then use the asset allocation of the fund you selected to provide you with an allocation target for your company plan.  Just remember every couple of years to revisit the Target Retirement Fund you are basing your allocation on so that you'll know when adjustments are made.

If you work for an employer who offers a 401(k) plan, participation is easily handled through payroll deductions.  However, if you identified in Step 1 above other plans in which you would like to participate, you will have to enroll yourself.  This process is not terribly complicated.  Vanguard is an excellent choice for both retirement and taxable accounts due to low expenses, longevity, broad fund selection, excellent customer service, and supreme integrity.  Vanguard makes your journey to financial success smooth sailing!  To open a new account with Vanguard, whether it be a retirement or taxable account, click here.