What is the Optimal Order to Invest your Money? 

Asset classes

The optimal order to invest your money is the best starting point when it comes to investing your savings for the best returns. It is important because you have to achieve your personal financial goals. Therefore, you need to invest your money in a sequence that will be the most helpful in realizing your investment goals. However, where to put your money in order may vary from person to person because everyone has different goals. However, there are some basic rules that you can follow to reduce your debts and invest your savings. 

So, what is the optimal order to invest your money? If you want to know the answer to this question, you are on the right platform. In this article, we are going to help you understand the optimal order to invest your savings for the best possible outcome. Here we go!

What is the optimal order to invest your money? 

Knowing about the optimal order to invest your money is of paramount importance. As you need to maximize returns, you need a sequence that ensures you reach your target. The following is the optimal order that will optimize your return on your money. 

Emergency funds

As you know, life is full of uncertainties, surprises, and emergencies. Therefore, it is imperative to have some funds to deal with any emergency. You need to put emergency funds aside so that you can get them when needed. Furthermore, this money should be at least three months of living expenses and you need to replace it if it’s spent before moving on to the next step.

401k retirement matching programs

401k retirement matching programs are offered by numerous large corporations in the United States. The corporations offering these programs match what you deposit into the account. Additionally, these programs are tax-deferred programs. Particulars of the program may differ from one company to the other. For example, some companies offer 5% matching while others may offer more or less than that. It means if you earn $100,000 per year and deposit 5% of your income each week by the end of the year, you are actually contributing $5,000 per year from your own salary. So, your company also matches your deposit with an additional $5,000. That is a dollar-to-dollar match and your $5,000 becomes $10,000. 

Moreover, money going into this matching account of the program is pretax money. That means you are able to defer tax until you withdraw your funds. So, you get a 100% return and these funds are tax-free. In addition, the capital gains and dividends from investment serve as icing on the cake. 

Paying off credit card debt

Credit card debts carry high interest and therefore, getting rid of them means a lot. In fact, it is better to pay off credit card debt than invest in stocks. How so and why so? Because you cannot earn more return on your investment than you pay interest to the bank on your credit card debt. That’s why this step is the next in the optimal order to invest your money. 

Paying off other debts

After paying off high-interest credit card debt, the next step is to pay off other debts with low interest. You must be thinking that why does the optimal order to invest contain debt payments? This is because relieving yourself from debt burden is more important before investing money. Moreover, having a debt burden means you aren’t yet ready for investment. So, you need to increase your income or reduce expenses to save money for investment. 

The maximum contribution to 401k or IRA

Income tax is a high expense for people with higher income and therefore, it is important for them to minimize tax. And the maximum contribution to 401k or IRA is the best bet for better tax optimization. In fact, it is always the first step, and investing or trading with a taxable brokerage account is the second step. This way, you can minimize the high percentage tax amount. Additionally, it also enables you to grow your capital before paying tax and to compound capital until withdrawal. 

Taxable brokerage account

The next step in the optimal order to invest your money is using a taxable brokerage account. It is the account that enables people to trade or invest in financial instruments like stocks. This is the right time to go for a risky move because you had already maxed out your retirement plans, optimized taxes, and paid debts. This is the capital that you can afford to lose as losing this capital doesn’t affect your living standards. 

Health savings account

A health savings account isn’t for all. If you are young and healthy, there is no need to allocate your money to it. You need to use your money in the previous steps. However, if you are old and have a family, then a health savings account is the best way to optimize taxes while paying your medical bills. However, you need to be eligible to contribute to a health savings account. You can withdraw tax-free money from your account. However, the withdrawal amount must be for qualified medical expenses. 

Isn’t paying off a mortgage a step in the optimal order to invest money?

A mortgage has low interest rates and therefore, it shouldn’t be your priority. That’s why it isn’t the optimal order to invest your money. Moreover, inflation has been running high in recent years and today’s dollar amount is worth more than the exact dollar amount in the future. Additionally, if you invest that money in the stock market, you can make more money than mortgage interest. That said, the best strategy to carry a mortgage and save your capital to use in the optimal order is to invest your capital. 

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

Are Candlestick Patterns Reliable

candlesticksWe loved Marwood Research’s course “Candlestick Analysis For Professional Traders“. Do you want to follow a great video course and deep dive into 26 candlestick patterns (and compare their success rates)? Then make sure to check this course!

Want to know which markets just printed a pattern?

Market Timeframe Printed on

Get “Every Candlestick Patterns Statistics”, The Last Trading Book You’ll Ever Need! 📖

PatternsWizard book - Every Candlestick Patterns Statistics

"Every Candlestick Patterns Statistics", the last trading book you'll ever need!

Pre-register now and receive the candlestick patterns statistics ultimate ebook for free before anyone else!

"All you need is one pattern to make a living."
- Linda Raschke

Awesome move! We are giving the last touch to the "Every Candlestick Patterns Statistics" book. We are very excited to send it to you right when it's ready. In the meantime, we'd like to gift you our trading roadmap and its best 55 resources. You'll shortly receive an email with the link. Don't miss it ;) Stay tuned 📈