Investment Advice for Beginner who doesn't have much to invest

[KatieNK]

We have a modest savings thanks to a gift from a grandfather and I would like to do something with it, besides have it sit in my savings along with the EF. I want something low risk and something that you can only invest a few thousand if you want. Should we do a CD? Anything else? Thanks!

[woodie96]

It would depend on other aspects of your financial situation, like debts, income, etc.
If it was purely discretional income that you are looking to make more than a typical saving account, then I would look into some of the more stable mutual funds. I hear Vanguard has some pretty good ones, although I do not have Vanguards stuff myself.

[jIM_Ohio]

How long will money be invested?
How often are you going to check the balance of the investment?

If money will be invested for longer than 8 years, consider stocks (equities)
If you are going to check the balance every day-week-month then make sure there is at least 50% bonds in the investment (for price stability).

My wife asked me the other day how the markets were doing (our IRA statements came in the mail)
I told her I did not know
That is because I am invested in 95% equities. If I looked more often I would see my 200k portfolio shrink to 180k, then increase to 210k then decrease to 190k and increase to...

equities will be a roller coaster ride- if you are new to investing find a broad equity fund (I like PRFDX), buy it and forget about it for 2-3 years, then check.

If you will check balance more, try a moderate fund (I like PRPFX). It holds gold and silver and equities and bonds. It will not give great returns, but the probabilty you lose money is really low compared to most 100% equity funds

[KatieNK]

Ok now I am just scared. All of that confused me. That is why I only have an IRA, and 2 savings accounts!

[creditcardfree]

What I hear from your first post is that you want the money seperated from your emergency fund and you want it to earn something while it sits there. Correct?

Jim did ask a valid question: how long until you think you might need to use this money and what might you use it for?

We don't want you to put in the stock market or a mutual fund, if this is for a downpayment on a house or other planned event that is less than 5 years from now. It would be too risky. Stock market is for long term investments over five years or longer because they do fluctuate over time.

CD's are a great idea if you will need/use the money in less than 5 years. There are different lengths and rates. Generally, the longer term the higher the rate. Most CD's pay more than savings accounts, but rates are pretty low right now compared to years past.

You might also look online for high yield checking accounts, that may pay even higher rates, but there are rules to follow to qualify for the rates.

[KatieNK]

Thanks!

I don't have any plans to use it, really. Would like it to just hang out earning a little money in case we ever have a big emergency or something, I guess. I want to just pretend we don't have it, lol.

I was looking into CDs and high yield checking and one I found (on this site!) was redneckbank.com. But I am not too sure about that!

[creditcardfree]

Redneckbank is a legitimate online bank. You do have to make sure you can meet the terms of those high yield checking accounts, which require a certain number of debit transactions, online statements and often a direct deposit. Personally, it is just too much work for me, but they work for some.

You might consider laddering your cd's. Here is an article that explains it.
How to Maximize Your Returns with CDs - Associated Content - associatedcontent.com
The rates are probably lower than when the article was written.

[jIM_Ohio]

Thanks!

I don't have any plans to use it, really. Would like it to just hang out earning a little money in case we ever have a big emergency or something, I guess. I want to just pretend we don't have it, lol.

I was looking into CDs and high yield checking and one I found (on this site!) was redneckbank.com. But I am not too sure about that!

Believe it or not, the description you give is contradictory. The advice you get will be all over the place depending on the reader's interpretation.

Example-

I don't have any plan to use it- interpretation- buy stocks, lots of it, because you can afford to lose the money.
I don't plan to use it- interpretation- keep the money safe because you have no idea what it will be used for and need access to it quickly.
like it to hang out and earn a little bit- interpretation- you want to earn interest on the money
like it to hang out and earn a little bit- interpretation- you want to let it hang and risk the farm to make maximum profit
in case we have a big emergency or something- interpretation- this is an emergency fund and needs to be safe and liquid so avoid stocks
in case we have a big emergency or something- interpretation- most emergencies are little, so let this money ride in stocks because you have a way to handle the little emergencies already.
I just want to pretend we don't have it- interpretation- invest in stocks and forget about it

We know very little about you. Do you spend less than you earn? Do you have a retirement account? Do you regularly contribute to a retirement account? Do you have cash in an emergency fund? Is it 3 months expenses?

The more information you give, and the more receptive you are to advice will probably show a different pattern of responses.

[KatieNK]

Well I did say I want low risk just because I am don't know enough about investing nor do I have enough to invest to risk losing it.


I do have an EF and wouldn't touch this money I want to invest/put away somewhere unless there was a HUGE emergency or something. Just like someone would probably never touch their 401k for the same reason. Know what I mean?

I guess the best way to phrase it is that I am looking for somewhere to put away some money, not invest.

So far I like the Redneck Bank money market checking because the terms are easy to meet and interest is 2%, which is 1% higher than most CDs I can find. I would really like to find a CD that offered at least 2% if anyone knows of any.


Thank you, creditcardfree, for the info on stacking CDs. I will look into that now. I think that is what DH's rich grandfather does. He is 101 and goes to the bank every other week to roll over some CD that is maturing!

[jpg7n16]

Well I did say I want low risk just because I am don't know enough about investing nor do I have enough to invest to risk losing it.

Then I would say a good investment for you would be... a book. The Intelligent Investor by Benjamin Graham.

You should never invest money in something you don't understand.

Jim's giving some good advice. You want to think most about your current financial picture and your time horizon - ie. am I in a financial position to invest this money? and how long will it be until I need this money again? If less than 5 years, keep it in a money market account, like the one you are looking at.

If this is money you are saving towards your retirement - well over 5 years - then you need to invest in something that will earn more than inflation over a long period of time, and a money market fund won't do that. The best investment to do that with would be stock mutual funds.

But if you still have any credit card debt, the best investment is to pay it off (save 18% guaranteed)

[snafu]

I have the impression you are young and know you're smart as you have an EF. There is no rush, you can take time to learn a little about investment choices and can afford a small level of risk. If you likely won't use the sum given by grandfather in the next five years, I suggest you talk to someone at Vanguard Mutual Funds about their index fund minimums. You can make arrangements to have a set sum transferred once a month and ease yourself slowly into the world of investment. If you don't take the time to learn...it will likely come back and bite you...sometime in the future.

[jIM_Ohio]

Well I did say I want low risk just because I am don't know enough about investing nor do I have enough to invest to risk losing it.


I do have an EF and wouldn't touch this money I want to invest/put away somewhere unless there was a HUGE emergency or something. Just like someone would probably never touch their 401k for the same reason. Know what I mean?

I guess the best way to phrase it is that I am looking for somewhere to put away some money, not invest.

So far I like the Redneck Bank money market checking because the terms are easy to meet and interest is 2%, which is 1% higher than most CDs I can find. I would really like to find a CD that offered at least 2% if anyone knows of any.


Thank you, creditcardfree, for the info on stacking CDs. I will look into that now. I think that is what DH's rich grandfather does. He is 101 and goes to the bank every other week to roll over some CD that is maturing!

Stick with FDIC insured deposits or US Treasuries. Interest rates are low, so I suggest anything you get have a short duration (now is not the time to be looking for a 7 year CD unless that return is north of 7-8%). Open 3 month, 12 month and 24 month CDs, use a money market, or look to 5 year bonds possibly.

Because you have an EF, and understand its purpose, I believe you can take on more risk (if you are comfortable with that risk). PRPFX is a good next step- the fund is called Permanent Porfolio. It Owns stocks (about 30%) bonds and cash (about 40%) and gold and silver (about 25% gold and 5% silver).

If you believe in the fund, it will easily beat the returns of any cash based or treasury based investment. It should also have a lower tax impact than the CDs or Treasuries mentioned above.

I would split money 50-50 between the cash and the mutual fund, until you "understood" the volatility the fund gives you. For example if you have $10,000 to set aside

Put $5000 in PRPFX
and $1000 into 5 different CDs (3 months x4 and 12 months x1). Then when each CD matures, roll it into a 12 month CD.

Every year you could compare the PRPFX balance to the balance of all CDs and see how much extra return you are getting, and balance that with the risk you are taking (PRPFX might take $5000 and turn it into $4000... that is unlikely... and PRPFX could also take the $5000 and turn it into $5500-likely- and possibly $6000- not likely, but it is possible).

PRPFX is considered a moderate allocation fund. Read about it before investing, I own that fund and have for about 2 years (will be 3 in January of 2011).

[Ticker]

Go and educate yourself first and foremost. Read up on zerohedge.com, calculatedriskblog.com, market ticker, globaleconomicanalysis.blogspot.com
Then figure out a plan...