10,000 to invest

[jeffmem]

Hi guys,

I have about $10,000 of lose money floating around that I want to invest in something other than an MMA. I was considering either a mutual fund or a municipal bond. The money can stay invested for 10-20 years I don't care, but I would love to find something that would double this in the short term with minimal to medium risk. I am seeing stocks start to go up again and I am thinking now is the time to do whatever I want to do.

[Broken Arrow]

Did you ask this already, or do I have you confused with someone else?

Also, how much risk? Are you willing to risk as much as half of that? All of that? A general rule of thumb is to match how much you're willing to gain by how much you're willing to lose. So, if you want to double your money, then you should expect investments that could put all of your money at risk.

What is your time horizon? 10-20 years? Or something much less than that?

What does the rest of your portfolio look like?

[jeffmem]

I don't think I asked this before, though I suppose it is possible, but if I did it was a year ago or more.

Risk, mmm well low to medium, I kind of don't want to lose it, so it should be something stable.

10-20 years is fine, if I can double it in 10 years I would be very happy!

Well I have 1 stock, 2 mutual funds, some cash, and a couple of gov't bonds.

[disneysteve]

Not enough info to give an answer.

We'd need to know the allocation of your current portfolio - what % in stocks, what % in bonds, what % in cash, etc. How old are you? Are you contributing to a retirement plan - 401k and/or Roth?

Doubling an investment in 10 years is certainly achievable. That would need an annual return of about 7.2%.

Looking stictly at this money, ignoring any other investments are what your overall allocation is, you could probably achieve that with a diversified stock mutual fund like a total market index fund or an S&P 500 index fund.

[snafu]

Before you consider specifics, I believe you need to seriously look at your RISK tolerance. Have you recognized that leaving your money in a MMA is risky as the ROI [return on investment] does not keep up with inflation so you are actually losing money each month?

In order to obtain 7.2% per yr. on av., some months the value of your investments may move down. You have just witnesses that rollercoaster ride. How would you feel when a statement arrives in the mail, showing you have lost 40% since the high? Would you sell locking in a loss?

You need a program that will allow you to sleep at night with a mix of different products that you allow to grow for 10-20 yrs. 'Coach Potato' recommends you not put more than 10% in any one product. Have a look at ETFs for inexpensive long term holding instruments.

Explore Dollar Cost Averaging and a mix of Mutual Funds as alternative.

[ea1776]

To achieve 7.2% in 10 years, I'd use a solid dividend mutual fund. PRDGX has a low expense ratio and tracks companies that have a long track record of raising dividends over time. They are slow-moving large cap US companies that pay handsome dividends. Just use a DRIP (dividend re-investment program), and sit tight. IMO, less risk that an S&P500 fund, but also less reward potential (that's investing for ya'). Not a guarantee that you'd achieve the 7.2%, or even that you wouldn't lose money though. Companies that show dividend growth over time usually are financially strong. Best thing about the fund is that they will axe companies whose dividends are in danger of being cut.

One bad thing about dividends, is that if this is a taxable account, you will get hurt on your tax bill. If its tax-deferred, then I REALLY LOVE DIVIDEND GROWTH FUNDS. I believe there are also dividend achiever index funds with possibly lower expense ratios that are more or less the same thing.

[ea1776]

Originally Posted by ea1776

I believe there are also dividend achiever index funds with possibly lower expense ratios that are more or less the same thing.

VDAIX - Vanguard's Dividend Appreciation Index

This is even better than the fund I mentioned before. Lower expense ratio, since it just tracks the dividend appreciation index. You can read about these here:
Mergent's Dividend Achievers Index Serves as Benchmark for New Vanguard Fund - Mergent

[jeffmem]

Hello DisneySteve,

Actually you forced me to look at some numbers which I feel is very useful, I went through everything and here is what I can tell you.

I am 33 years old living outside the US, I need to pay taxes, but what i am putting into the SS and Medicare is around $1000 year, total, yeah very little I know. This has been going on for about 10 years. Not a good situation but I have my 40 quarters in at least.

I have no 401k because I am not working in the US.

Ok allocation:

Cash: 66% includes CD's, MMA's and other savings. I only really want to invest about $12,000 of this cash, other is for emergencies, etc.
Government Bonds 18%
Traditional IRA: 3%, note I have only around 2k in this, I have been advised by my accountant not to put anymore because interest rates are so low and I am getting better on other MMAs.
Stock: 6.8%
Mutual Funds: I have two, together total 6.5%
AEPGX and PRASX, both of which were started last year, bad bad bad. I lost quite a bit, but have kept putting money into them, so they are balancing out a bit.

I know that is not a perfect 100%, but it's close.

EA1776, thanks for your advice on the mutual funds, I have added them to my Scottrade account to follow and look at when I get a minute.

What do you guys thing of the Templeton bond funds, for example TPINX?

[disneysteve]

Originally Posted by jeffmem

Cash: 66%
Government Bonds 18%
Traditional IRA: 3%, note I have only around 2k in this, I have been advised by my accountant not to put anymore because interest rates are so low and I am getting better on other MMAs.
Stock: 6.8%
Mutual Funds: I have two, together total 6.5%

Why does a 33-year-old have 84% of his money in cash and bonds? I think that is way too conservative for someone your age. If you were 73 I think you should have more in stocks than that.

As for your IRA, I don't understand your accountant's advice at all. He thinks you are better off putting money in a taxable money market fund earning maybe 2% than you are investing in stocks and stock mutual funds in a tax-sheltered account? That doesn't make sense at all.

[jeffmem]

Hi disneysteve.

The IRA thing, in his opinion the IRA rates are low, and the amount of income I am claiming is not high enough to make the MMA's interest taxable. He suggests putting the money into other things such as stocks and mutual funds. As for a tax sheltered account, I have no idea what that is so I need to check.

Well... I am conservative, and greatly worried about the future because of the SS thing, the more you put in the more you get back, I am putting in only 1/5th of what you guys are putting in due to my overseas status. It is complicated. I don't want to lose the 84%. I want something stable but can earn money, thus the reason why I am posting in this forum, I am looking for some advice and help as to what to look at.

Stocks? I am not that good at picking them. The one I have now has been down for 2 years. I made money before, but I buy them cheap and sell when they go up about a buck, make a few thousand I am happy. But I am a sore loser, so I don't want to put my money in something that may end up going bankrupt.

[disneysteve]

Originally Posted by jeffmem

The IRA thing, in his opinion the IRA rates are low, and the amount of income I am claiming is not high enough to make the MMA's interest taxable. He suggests putting the money into other things such as stocks and mutual funds. As for a tax sheltered account, I have no idea what that is so I need to check.

I have no idea what he means by "the IRA rates are low."

An IRA is not a type of investment. It is a type of account. Think of it as a basket. There is a wide variety of options for what you can put in that basket. You can fill it with individual stocks, bonds, CDs, mutual funds, even real estate. So to say that "IRA rates are low" doesn't make any sense.

Money invested in a traditional IRA gets you a tax deduction if you meet certain income requirements. Then, once the money is in the IRA, it grows tax-free until you withdraw it in retirement. That's what I mean when I say it is tax-sheltered.

[jeffmem]

Hello disneysteve,

Yes I know I can reinvest the IRA into other things and am planning to do so once I find something that can earn money. Sorry we are on opposite sides of the world, it was 3am when I replied to you.

Aside from the IRA issue, what would you recommend at this point?

[jeffmem]

I had thought about that before, but I was warned to stay away from annuities because they are risky and are not FDIC insured. Yeah I know neither are stocks and mutual funds. But annuities seem to have less protection than either of the other two. I do not know a lot about annuities, I am just going off on what I have been told.

[lemarquis]

I'm surprised not many people mention social lending when someone asks for investment ideas. I always recommend it.

[jeffmem]

This is intriguing, tell me more? Other sites?

Have you tried, anyone default? How much did you make/lose? Safe?

[lemarquis]

Yes, I've been a peer to peer lender with Prosper for two years now. Net return as of today was 15%. It was closer to 20% before a couple of charge-offs I had a few months back. The charge-offs and late payments seem to have petered out though, looks to me like it will be smooth sailing ahead. Still, 15% is much better than most other investment avenues. Prosper isn't accepting lenders or borrowers at the moment because they're going through registration with the SEC. LC and Pertuity are already registered and up and running. Plus these two are much safer for investors because they have minimum credit requirements for borrowers. Of course that means lower returns for the lender though.

Also: loan terms depend on the state the borrower lives in. So, the amount of time the money is tied up depends on their state's laws - usually 3 to 5 years though.

[jeffmem]

Thanks for your further update.

Are you buying through the site you gave me or thourgh a broker account? What would be the difference, any? They have a stock/mutual fund also.

Who is prosper? I can still sign up through the account you sent me, in the process now.

[lemarquis]

Ok, I think there is a bit of confusion here, sorry. The link in my previous post was an article that introduces social lending and provides information on two companies that you can do this through - Lending Club and Pertuity Direct. Please don't confuse these with equities or funds - you don't trade these instruments with them. When you invest your money in social lending you are "loaning" your money to borrowers, just as a bank does and you earn interest on these loans. The social lending sites are the networks through which you lend your money to people, they are the central clearing house not a broker.

Prosper is another peer to peer lending network that works just like the other two mentioned above. I mentioned them because they are the network that I have had experience with. However, they are not accepting new lenders at the moment.

In closing, please be aware - you are not "buying" stocks, funds, or any other money instrument when you get involved in social lending. Instead, you are "loaning" your money to creditworthy borrowers and earning interest. In other words, you can now be called Mr. Banker. I hope this clears up any confusion.

[jeffmem]

lemarquis, thank you for your further explanation, have you tried either of the two you mentioned? Lending Club and Pertuity Direct? Have you ever heard of this one? Social Finance Through The National Retail Fund

What I was trying to get more information on is that I know that what you have introduced is different than investing in a stock. However, what I was asking you was that, I have found a stock or mutual fund for the national retail fund, are you familiar with this? It is trading around 17 now.

Let me know if you have heard of either of the above two things and let me know what you think. Thanks!