How Should People In Their 40’s Invest?

how should 40 year old's invest
I still move pretty good for 40!

If all goes according to plan, as of this afternoon, we will be the proud owners of a new rental property. It’s been a crazy half decade here in the Eyes on the Dollar household. We’ve gone from huge amounts of consumer debt,  to selling a business, to becoming landlords. In all honestly, if 2015 could be the same as 2014, I’d be happy with that, but I never assume things will go the same. It seems the only constant you can count on is change!

As 2014 comes to a close, I thought I’d look at the next  year and the next few years and seek out some opinions on where we should go from here. When in doubt, ask someone else!

How Should People In Their 40’s Invest?

If we were 23 years old,  just starting out with few assets, it would be a no brainer to say max out the 401k, invest in a Roth, or save up for a down payment on a house. As you get older, there are many more  variables. Here is a breakdown of what we’re doing now.

Remember we’re old! We are both in our 40’s and hope to retire in 10 years.

Things we will make a priority every year

  • Add at least the full employee contribution to my solo 401k plan, $18,000 next year.
  • Max out our HSA.
  • Add $200 a month to our daughter’s 529 plan.

Things we did last year

  • Add about $500 a month extra toward our primary residence, which is at a low 3.25% interest rate.
  • Invest a decent amount in Betterment, which is not tax deferred.
  • Put money in savings each month to use toward rental property down payments.
  • Invest in Jim’s 401k. He doesn’t max his 401k out because the options for investments are not great and he gets no match. His job is also pension eligible.
  • Invest in Roth IRA’s. We have always maxed these out in year’s past but last year decided to only max out one and put the rest in my solo 401k to help with our taxes.
  • Did not put any extra toward rental property mortgages.

Things that are different this year

  • I sold my business last year and received a decent size down payment that put us into a higher tax situation. We won’t have that this year.
  • We are done buying rental properties for at least a few years, maybe forever. The ones we have now will cover our income in retirement, so should we be greedy and go for more or say enough is enough?

What should we do?

So with all that earth shattering information, I’d appreciate some advice on how to proceed this year.

Emergency Fund

Obvioiusly, we don’t need to add to liquid savings because we have no need for a purchase that requires cash. We will keep an amount that would cover our health insurance deductible or cover a major repair on our house or one of the rentals. If that gets depleted, we would work on replenishing it.

OR should we keep very little in savings and invest the rest in something with a greater return? If we need emergency cash, we could use our HELOC or one of our credit cards until we could access cash from our investments, or we would go bare bones on spending and not invest for a few months to pay off the loan. I realize this is outside of what many finance gurus would advise, but I’m curious about your advice on large emergency funds for people with no consumer debt and fairly stable incomes.


If you were us, would you contribute more to tax advantaged accounts or put more into stock investments? Again, we plan to use rental income to support our expenses when we retire, so maybe investing in stocks is not the best plan? Would you continue to invest in Roth’s or put more into 401k’s? Because I have a solo plan, I am able to add 25% of my income as an employer contribution on top of the $18,000.

Rental Property

Would it be better to use the extra money we are paying on our house toward rental property mortgages? The interest rate on those are 4.25%. On paper it makes more sense, but something about having a paid off home appeals to me more than I can explain. We did watch family members lose a house later in life, so maybe that’s a motivation to make sure no one can ever take away our home. Sometimes emotion is greater than percentages and rates of return.

OR should we not put any extra toward mortgage debts and pour everything into other investments?


I appreciate your reading through situations that may or may not apply to your lives at all. If you’ve been in a similar place or are facing dilemmas of your own, I’d appreciate your ideas. I realize these are all good problems to have, and I’m thankful to have choices with our money other than paying off credit card balances.

What would you invest in if you were my age? Do you always invest based on highest rate of return or does emotion guide your choices?


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