Asset Allocation for the Self-Employed

Dear Dr. Don,

I am a 36-year-old male, married, with no children. My wife is 31. We plan on having two kids within the next two years. We both used to work for companies, but each of us is now self-employed. Last August I rolled the 401k funds into an IRA Rollover money market account. I am now ready to initiate my first real asset allocation.

In addition to our IRA rollover, we have a $30,000 emergency fund, which represents six months' worth of expenses, invested in a three-month CD earning 4.15%. I also have $40,000 on deposit for income tax payments. We both plan on retiring in our early 60s and if we invest wisely, perhaps even in our late 50s. ...