The Best Investment Plan

If it is possible for one investment plan to fit everyone, this is the one. There are only two steps.

1. Invest as much as possible monthly through a 403(b) plan.

2. Invest it in a Vanguard index fund.

That's all there is to it. Anyone can do it.

Why is this the best plan?

• Money contributed to an investment through a 403(b) plan is deducted from the monthly paycheck before taxes are computed, which means that neither state nor federal income taxes are paid on the amount invested.
• Money invested in a 403(b) plan is completely portable which means if a teacher changes employers the retirement plan continues.
• Money is contributed automatically and consistently and utilizes the power of Dollar-Cost Averaging .
• The Vanguard mutual fund company has the lowest fees for managing the money.
• An index fund is invested in ALL the stocks of a particular type, which means nobody has to guess what an individual stock is going to be worth in the future.
• It has the safety of broad diversification.

 

How is the investment done?

• Contact Vanguard at (800) 523-1154 to request a 403(b) application and a prospectus for one or more of their index funds. The application must be signed and returned.
• Contact the school district payroll department to sign their form that authorizes them to send your investment to Vanguard.

NOTE: Because Vanguard does not have a sales organization, most school districts do not have an agreement to transfer investments directly to Vanguard. In this case, an investor will have to open an account with another mutual fund company first and then, after the money has been sent, ask Vanguard to transfer it to the investor's account at Vanguard. Investors who would rather have an annuity with a fixed rate of return rather than being invested in the stock market should transfer their money to TIAA-CREF. (TIAA-CREF also offers very good, no-load mutual funds with low costs comparable to Vanguard).

Some of the good fund groups to use for this transfer are Fidelity (800) 544-8888, T. Rowe Price (800) 541-7853, and Dreyfus (800) 645-6561. All of these fund groups offer funds that do not charge a fee to begin a plan nor a fee to later transfer it out. For a complete list of fund companies that offer no-load funds you may click on No-Load Funds.

For a real life story about a real teacher and how she had to learn the hard way, read here the story in the Los Angeles Times on December 21, 1999, about Susie. Here's another teacher story from August 2012 Money Magazine. Tim and Karen

Go on to see the Frequently Asked Questions