Investment Hierarchy (Which Accounts to Fund First)

Jun 27, 2023 | Planning Playbook

When a person gets started with investing, it can be a challenge knowing where to begin. What type of accounts should you consider and in what order should you fund them? Watch this video to learn some general guidelines for the “investing hierarchy” that can help you decide which accounts to fund first.

Hi, I’m Brad Skluzacek, Vice President and Wealth Advisor at GreenUp Wealth Management. When a person gets started with investing, it can be a challenge to know where to begin. There are many types of investment accounts which can be confusing to someone who’s ready to start planning for the future. The order in which you fund those investment accounts should be based on your individual financial situation and goals. However, there are a few general guidelines for the investing hierarchy that can help you decide which account to fund first.

First, establish an emergency savings fund to cover unexpected expenses such as a job loss, high medical bill, or a car repair. A good rule of thumb is to have at least three to six months of living expenses saved up in this account.

Each person has individual goals. There is no one-size-fits-all strategy for what to do next. However, if you’re like many investors, once your emergency funds are in place, consider contributing to your retirement plan through work. A 401(k) or a 403(b) offers tax advantages, and many employers will match your contributions to a certain percentage of your salary. You should contribute at least enough to get the full employer match, which is essentially free money to boost your retirement savings. If your employer does not offer a 401(k) plan, you can contribute to a Traditional IRA or a Roth IRA.

Next, pay off high interest credit cards, personal loans, or any other debt with an interest rate of 10% or higher. The interest you pay on those debts can often be higher than the returns you would earn from investing. Paying down debt will save you money in the long run and can improve your credit score.

If you have a high deductible health insurance plan, a Health Savings Account (HSA) offers tax advantages and can be used for qualified medical expenses now and in the future. Finally, invest in a taxable investment account for those medium to long-term savings goals.

There is no one-size-fits-all answer when it comes to funding investment accounts. The financial planning process will help you identify your goals and develop an investment strategy for achieving them. Meet with your GreenUp Wealth Advisor to create a financial plan customized to your life’s aspirations. I’m Brad Skluzacek. Thanks for watching!

Author

  • Brad Skluzacek CFP® CPWA®

    Senior Vice President | Wealth Advisor | Kansas City -- Brad is a Certified Financial Planner who has been in the financial services industry for over a decade. Having served clients in many roles, ranging from Personal Banker to Financial Advisor, Brad brings a vast level of expertise providing a truly elite wealth management experience for his clients.

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