What can you invest with $10,000? We highlight a few possible ways to kick-start your investing journey below.
If you have reached your first $10,000 in your life, it surely brings an amazing feeling. After all, the money was earned painstakingly through sweat and “tears” while working.
Nonetheless, the next step can be daunting for most people because deciding how and where to invest your money is not always the easiest decision. A wrong step at the start could potentially cause a serious headache in the future. Fortunately, there are many possible avenues depending on your level of experience and goals as an investor. We have highlighted some common ones below.
There are many things you can lose –your home, your job, $10,000 cash, a motorcycle…and so on. What “they” cannot take is your knowledge. I would trade $10k anytime for the right piece of education – Mike Mc Mahon
As a beginner to the investment world, you are like a small fish among a school of big, knowledgeable sharks out there. Thus, to reduce the massive difference in knowledge, it is wise to head to the library, bookstores or even the Internet to read up and understand as much as you can. You can also sign up for trial stock accounts where you can try out for a period of time and start investing only when you are comfortable.
On the other hand, for people who would simply doze off when it comes to reading finance books and yet want to get started immediately, they may take a look at the 3 pointers below.
1. Stocks Investing
If you were the type who is interested in analyzing how companies grow their profits and staying abreast of economic news which can affect them, it would make sense to use the ten thousand dollars to start customizing your own stock portfolio.
However, there is also a phrase that goes by ” You Have To Learn To Crawl Before You Can Walk” and the same applies to stock investing. Avoid thinking that you will rack up huge winners at the beginning, even before you manage to comprehend on how stock markets function and the complexity involving your own emotions.
That being said, it still beats not doing anything. When you take action, you can continually reflect on your mistakes when you are still young. Would you rather lose a few thousand today when you can still afford it or a few hundred grand when you retire? While it is the same mistake that you may make, the impact is totally different.
Investment in stocks requires a great deal of energy to constantly search for the best possible targets. Think of a football manager who constantly goes to scout for new talent, which may or may not fit into his football team. Unlike soccer however, most individual investors do not have the skills or time to monitor and examine each company the way a professional fund manager would do every day.
Thus, it makes sense for them to allocate their monies into mutual funds as they are professionally managed and offer diversification, which you don’t get when you buy individual stocks. In fact, when you invest in those types of investment link insurance plans, they are just pooling your money into a mutual fund to generate more returns. Therefore, why not invest in one directly with choices like Fundsupermart.com and dollardex.com, which houses many different funds for you to choose from.
Nevertheless, despite all the glamorous stuff about mutual funds, you must also beware of the pitfalls for mutual fund investing. Look for no-load funds as management fees can erode your returns significantly. Secondly, look for funds that have performed consistently over several years, and not one who just performed remarkably (e.g. +50%) in one year. Chances are, the huge risks may entail to an even greater loss the following year.
3. Index Investing
Lastly, there is also something which acts as an in between compared to the 2 methods mentioned above – index investing. When you pick a low-cost fund pegged to an index like the Singapore Straits Times Index (^STI) or for United States – Standard & Poor’s 500 Index ($INX); you don’t have to worry about diversification or a money manager charging you an arm and leg for his investment strategy.
For instance, the Singapore Index is made up of many well-known large cap companies like ComfortDelgro, OCBC, Singtel etc – also known as blue chips. Thus, when you purchase a share of the entire index, it effectively lets you buy a little bit of all those companies and diversify across a large group of companies and sectors!
Furthermore, Index-focused funds also have the advantage of lower costs because there is no human intervention for all the stock picks that are usually done in mutual funds. All there is to do is to invest in whatever stocks compiled in that index.
In the past, index investing can only be done via mutual funds or ETFs. With the improvement of banking systems, one can do it through what is called the “Regular Savings Plan”. It is now available through some financial institutions like POSB or OCBC.
While it is relatively tempting to put your money to work straight away, it would be wise and prudent to first set aside an emergency savings fund (3 to 6 months of your average monthly expenditure) and have sufficient insurance coverage. In your later years, there will be many more sums of “$10,000” coming to your way. Thus, in my opinion, utilizing this $10,000 to its maximum capacity is of utmost importance. Give everything a try and don’t be afraid to fail because eventually, you would find the light at the end of the tunnel.
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Bonds and Fixed Income