My investment philosophy for the most part hasn’t changed much. If I had more dough, I’d still be continuing with my passive investment approach (i.e., buying mostly index mutual funds w/ low fees). However, at this stage in my life, cash is king and I believe there are better types of investments out there. I’ve pretty much accepted the fact that the behavior of the stock market is out of one’s control. I’d rather invest in things that I have more control over. Such as Formal education, furthering one’s skills, or learning a new trade. Ironically, this is coming from someone who was initially skeptical about the value of graduate school just two years earlier. Now two years wiser, I believe that while one’s still young, the best investment one can make is to invest in him or herself (and others too). Go back to school and get an advanced degree/degree or learn new skills to make yourself more competitive out there on the job market. Don’t believe the hogwash about buying a house to make money (it depends on one’s financial situation and opportunity costs) or your prospects of beating the stock market. Go get better and try to help others along the way.

Fortunately, I haven’t spent beyond my means and have a modest amount saved up for cash flow, investments, retirement, etc, although I’m sure that I’ve made impulse buys here and there using my credit card. So I’ve been reading how some families have become financially successful by cutting out their credit cards. I don’t think I can totally part ways with plastic, but I could set some ground rules and learn to stick to them. Namely, only use credit card for gas, certain bills (e.g., cell phone plan), and groceries. I’ll take out a certain amount from the ATM every month and stick to a budget to monitor my expenses. I’ll use my debit card for all other necessary purchases. Every now and then, I can splurge, but it will definitely be less frequent than in the past.

1.  If your company offers a 401k plan, sign up and contribute at least as much as what your company will match, since that’s free money.  I’d recommend at least 15% of your paycheck (pretax) and pick a diverse set of mutual funds (if you’re in you’re in your mid 20’s-early 30’s, select 90-95% stocks, 5-10% bonds for your asset mix; make sure you pick a solid ‘core’ — at least 50% of your mix should be large cap, 10-15% in International Funds, and 10-15% in small or mid caps). 

2.  Contribute to a Roth IRA ($4,000/year max if you’re single; $5,000/year max if you’re married) on a yearly basis.  Sign up through a retirement/brokerage firm such as Vanguard or T.Rowe Price (two of the best) and purchase what’s known as Target Retirement Funds.  These funds automatically adjust your mix of stocks, bonds, etc according to your age.  So say, you’re 38 and you hope to retire in about 30 years, you’ll want to look for a Target Retirement Fund with the year that’s at or close to the year that you plan on retiring–in this case, “Target Retirement 2035″.  Here’s a good primer on Target Retirement Funds.

If you’re in the mood for something gloomier, you may want to read the article on Sallie Mae and in the Fortune 2006 Investors Guide.

Also, according to an article in the latest Kiplinger’s Personal Finance, “Young workers should save 15% of their income for retirement”.

BANK MGR: “Have you looked into some investment options? Our investment advisor’s in today.”
ME: “Yeah, I opened a Roth IRA and maxed it out to $4,000 for 2005.”
BANK MGR: “Roth IRA? May I ask why you chose a Roth instead of the traditional? Reason I’m asking is because I usually go with the traditional IRA because of the upfront tax savings.”
ME: “Well, I figured a Roth IRA not only can help me save for retirement, but also can serve as an emergency fund.”.
BANK MGR: “I usually advise that emergency funds be in something more liquid, such as a money market, or savings/checkings, or even CDs. And the reason I go with a traditional IRA is that I can deduct that amount from my income, so say I max out my traditional IRA contribution ($4,000), I can deduct this and save about $1,000 dollars ($4,000/4), since in my tax bracket, I have to pay 25% of my income over initial $29,700. ”
ME: . . .

So the moral of the story’s that my decision to go with a Roth IRA instead of a traditional IRA probably cost me around $1,000 dollars this year. One should also keep in mind that most if not all retirement accounts are only eligible for those who make under a certain amount (Roth IRA: $110,000, etc.).