What is the best way to invest 10,000 dollars? Which would be the smartest investment that could guarantee good returns? The answers are presented further.
So you suddenly find yourself richer by $10,000 through an unexpected windfall, endowment or perhaps a performance bonus. Also, this time you have mastered the temptation of splurging it all instantly. If you have reached so far, in what follows, you will find some investment pointers that will help you maximize your returns.
To guarantee a better and financially secure future, investment decisions must be handled carefully. After all, when you are putting your hard-earned money on the line, it’s absolutely vital that you scrutinize your investment decisions thoroughly. Ten grands is quite a sizable amount of money. It provides you with a range of investment options to choose from.As most financial advisers would warn you, it’s not wise to bet all your money on one type of investment. A distribution of this sum of $10,000 among various investment options is a smarter way to go about it. This strategy lessens risks by distributing it over different investment vehicles.
Even before you think of investing, it is best to prioritize the improvement of your fiscal health. The clearance of financial debt and bills should always be top priority. Otherwise, like a leaking faucet, your debt is going to drain all your dough from the investment pool.
Once you have been lightened of your debt burden, your mind is free to think about investments. What would be the best way of investing 10,000 dollars, will depend on the degree of risk you are willing to bear, the expected time frame of returns and your long term investment goals.Higher returns always come with a higher degree of risk. A person who is investing as part of retirement planning will think differently from one who is looking for short term gains.
The kind of investment that one opts for also depends on a person’s temperament. Some may immediately head for Las Vegas to try out their luck or some may be just content with opting for secure, low-risk investments. While the first option is strictly not recommended; there is nothing wrong with opting for the safer low risk option. Gambling is the worst investment decision you could make. It is more of a debt trap, than an investment decision. To reduce the risk involved, I suggest that you divide the sum of $10,000 into chunks, ranging from smaller to bigger sizes. Invest the bigger chunks into low risk investments and invest the smaller chunks into investments with ascending order of risk involved. The gamut of investment options open to you are introduced in the following lines.
What is the Best Way to Invest $10,000?
Investing money is a smart move as it lets you go beyond your maximum earning potential. Some of the smartest investors who made it big, started out really small. What accelerated their growth wasn’t how much they invested, but wherethey invested it. It takes a lot of study and realistic analysis to identify good investment choices. Here are the range of options that you could choose from, in ascending degree of inherent risk involved:
Savings Bank Account
The safest bet is to invest your money in a saving bank account that provides a good interest rate. Some banks provide a progressive interest rate that increases with the amount of money invested. Though the returns are quite low, they are guaranteed and come with almost no risk. Look for banks with a good track record, FDIC insurance (limited to $100,000) and comparatively high interest rate on savings accounts. You may also open a savings account at a credit union. Ensure that your account is insured through the NCUSIF (National Credit Union Share Insurance Fund). As in the case of banks, look for high interest rates. A savings account is a good place to park the cash component of your entire portfolio. It acts as your emergency fund with its guaranteed liquidity, while also earning a decent amount of interest for you.
Gold has traditionally been the bulwark against inflation and market volatility. Some of the best investments in recession are gold investments. Gold prices have always been known to increase with time over the years. This makes gold a smart investment during recessionary times. It is one of the safest and oldest investment options that almost guarantees a good return. You may choose to buy gold bullion directly in the form of coins, jewelry or bars. Alternatively, you may invest in it indirectly, through gold ETFs (Exchange Traded Funds) and gold certificates. On the other end of the risk spectrum, you may invest in gold derivatives like options, futures and forwards. Financial experts recommend at least 5% to 10% exposure to gold, as part of the portfolio.
Certificate of Deposit
If you are looking for guaranteed and fixed returns, going for a certificate of deposit would also be one of the best low risk moves you could make. You deposit a certain amount of money with a bank, for a fixed period of time. You cannot withdraw that money till the certificate of deposit matures. After maturity, the bank returns you the principal amount of money, along with interest earned. The period for such an investment may be anything from 6 months to 5 years. Research thoroughly and look for CDs with medium to high interest rates. These are great investments options where you can park your money safely and earn decent interest with time.
Roth IRA and 401(k) Plans
If you need to create a retirement plan, Roth IRA, traditional IRA and 401 (k) plans are good choices to opt for. Know about other types of retirement plans too. Not only do they carry tax benefits, but their return is guaranteed after retirement.
While the 401 (k) plans are usually employer-sponsored, an employee can make a greater contribution if he wants. Roth IRA, a type of individual retirement account, is one of the most trusted retirement planning investment options. Consult a financial adviser for detailed information. This is the safest way to invest, if you are thinking of post-retirement financial security.
Mutual Fund Investment
If you are willing to take some degree of risk, you can invest in mutual funds. A mutual fund pools in money from multiple investors to buy securities of various kinds. The profits are shared with the investors. Risk in mutual fund investment arises from volatility of the prices of securities purchased. Professional management of your invested money, easy liquidity and diversity, are some of the inherent advantages of mutual funds. Most importantly, they are affordable investments. Research the past performance of the fund, the sectors it invests in, fees and commissions charged, consistency of returns and the quality of management, before going ahead.
Stocks and Other Securities
Instead of indirectly investing in the securities market through mutual funds, you can think of directly investing in stocks and bonds. Stock investing comes with the highest degree of risk as your returns entirely depend on how your stocks performs. Before buying stocks for the first time, you need to understand the stock market investing basics.
You need to take help from an expert who is well-versed in the currents and undercurrents of the stock market or engage in thorough stock research on your own to determine the best stocks to invest. There are stocks that pay dividends to the share holders, which can guarantee regular income. Investing in the stock market is the most high risk option, but also the one with highest returns. Stocks with large market capitalization, the so-called blue chip stocks make fore safe bets. All the same, their prices may set them out of your reach. Look for stocks with a high return on investment, positive operating cash flow, high P/E ratio and promising growth prospects in the future.
So the best way to invest your 10,000 dollars fund, might be any one of the above, depending on your ability to handle risk and the kind of returns you are looking for. I would personally advise you to spread out the $10,000 among two or three of these investment options. As suggested before, distributing your money will automatically reduce the risk. You will save yourself from the perils of putting all your eggs in the same basket. Go for a range of investments with an ascending order of risk to reap benefits from each. Make an investment plan and consult a professional financial adviser regarding details about tax benefits and risks involved. Think conservatively and take calculated risks. Believe in sound fundamental displayed by numbers, rather than speculation. One thing that is as clear as a bright day is that you must make every penny in those $10,000 count.