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It's all about you -- really

Question: I'm putting the max allowed in my retirement accounts, and it's invested fairly conservatively in index funds. I lost a bunch of money in the tech stock crash in the early 2000s, which makes me hesitant to dump more money in the stock market. I own an apartment and don't really want more exposure to real estate, either. I'm starting to build up enough cash that I don't want to just leave it in my savings account. The only debt I have is my mortgage, and while I have decreased the balance on it, the interest rate is so low that it seems like there must be something better I can do with the cash. Any suggestions? Kira, Washington DC

Answer: You're in good financial shape. So, rather than suggest a better investment option or money-making strategy for your savings, what I want to do is suggest an alternative approach. Continue to siphon money into safe savings for now and put it on automatic pilot.  

Then forget about investing. Instead, think about what it is you want to be doing with your life over the next year, 5 years, 10 years. What are your dreams, your passions, and your goals, from the mundane to the ambitious? "If you can discover what you want out of life -- the why -- then there are a number of ways to get there -- the how," says Ross Levin, a certified financial planner and head of Accredited Investors Inc.  

You want to focus on the why.  Where to invest the money is the how. It's all about you. It isn't about what your friends think you should want or what a financial adviser believes is smart. Here's how Zvi Bodie and Rachelle Taqqu put it in Risk Less and Prosper: Your Guide to Safer Investing: 

Your goals and your biography are not simply the stepping-off point for your plan. They are both driver and destination. They help determine the vehicle as well as the path. They dictate how high or low you can fly, how black-and-white your plan should be, and how much color and wiggle room you can add.

By keeping your savings safe, the money will be there when you know what you want to be doing. It's your goals that will tell you how much goes into stocks, bonds, cash, real estate, and so on.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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