This is a guest post of Finance Junkie at Plugged in Finance. Finance Junkie is a Navy Lieutenant Commander (same rank as a Major in the other military branches) who loves to write about personal finances and investing. His goal is to retire in 2025 with at least $125k per year in passive income. Since 2003, he and his wife have gone from being just barely in the red to accumulating almost $400k in net worth on $110k per year household income. In today’s post, Finance Junkie talks about investments in self, stocks and ends with a collection of tips on real estate.

The bottom line to any successful retirement strategy is the creation of wealth and passive income. Investment strategies range from being a certificate of deposit (CD) miser, hoping your savings outlast inflation; to a diversified portfolio owner who minimizes losses and grows a nest egg that’s the envy of others.

Investing for Retirement: A Primer for Success

Your wealth accumulation strategy need not focus purely on the stock market. Start first in those areas where you feel competent or at least most easily prepped. In all of your efforts minimize losses. The importance of minimizing losses can be described in the following example:

Starting with $10k in 2009 you earn 20 percent over the year, ending with $12k. At the end of 2009 you rebalance your investments and take on more risks, attempting to beat your 2009 performance. In 2010, your risky investments flop and you lose 20%, ending with $9.6k. You then realize that you can’t get back to $12k with simply a 20% return, YOU HAVE TO MAKE A 25% RETURN ($9.6k * 1.25 = $12k). Thus, it’s important to stem losses before they build. If not, you’ll have to make a greater return to recover.

I’d love to talk about a myriad of topics but will restrict myself to a discussion on investments in self, stock market and real estate. Hey, keeping my post to just this gives me more content for later guest posts on this fabulous site or others.

Investments in Self. The best investments are those made in self. This sentiment has been echoed by legendary investor Warren Buffet on a number of occasions. Also, a particularly useful 2002 study confirms this by listing average earnings potential based on education:

Highschool degree: $1.2 million

Bachelor’s degree: $2.1 million

Master’s degree: $2.5 million

Doctoral degree: $3.4 million

Professional degree: $4.4 million

“At most ages, more education equates with higher earnings, and the payoff is most notable at the highest educational levels,” (Jennifer Cheeseman, “The Big Payoff…”)

Investments in Stocks. Trying to hit a grand slam in stock picking is just that, an uncommon event uneasily replicated. My two tips are to wait until the market is giving stocks away at low prices and investing in broad index funds that minimize investment fees. Investing in broad index funds hedges you against the potentially crushing blow of having an individually held stock go drop precipitously. A good article on index fund investing is written by Ben Stein and can be found here. You can Google the topic and also find a number of other Index / ETF portfolio ideas.

Investments in Real Estate. My background in real estate is based on the purchase of three houses since 2001. Of these purchases, only my first was purchased through a real estate broker. I still have all three houses and maintain them as rental properties. My advice:

Don’t buy a house that you can’t later convert into a rental. The one exclusion is if you’re truly in a situation to settle down without moving. Buying a house that you can later rent only gives you more latitude. It’s best to have the options of being able to rent out a property, doing a sale or allowing a lease-purchase whenever you move. If you’re not going to be in this position you should be more careful when you buy or face the potential risk of having to short sale your house (for a loss) when you move.

I recommend using Zillow whenever you are shopping for real estate. Zillow is a great site that offers site unseen appraisals. Of course, the appraisals are approximations. In my case, I found that the Zillow appraisal was within 2% of my last paid appraisal. I use Zillow for comparison shopping after creating any portfolio of MLS listings. By using Zillow, I’m able to get a quick read on prior sale prices of houses as well as estimated house values (called a “z-estimate”). In some cases you’ll find that people are in no hurry to sell and overprice their houses. In other cases, you may find houses discounted.

If you buy a previously owned house, you can save about 20-40% on your title insurance costs by providing proof of previous title insurance. I simply forwarded to my closing attorney some title insurance details that the seller provided from his old policy. This allowed the attorney to sell me a discounted title insurance policy, saving me hundreds.

Choosing the right mortgage can save you hundreds of thousands over the life of a loan. Before choosing a mortgage, consider reading the book “106 Mortgage Secrets…” by Dr. Gary Eldred. People from all backgrounds stand to learn from this book. The book’s table of contents lists all 106 mortgage secrets in sentence form. Any person can give the table of contents a quick read and determine what topics require further study.

Finally, if you’re an aspiring real estate tycoon, I recommend you get smart on 1031 exchanges. This is a type of IRS filing that owners of investment property can do to legitimately carry over investment property capital gains without paying any tax on the capital gains.

I’d like to thank the Finance Junkie for a great guest posts.  Please check out my guest post at his site Plugged in Finance.