Watering the money tree?
January 21, 2010 1:57 PM Subscribe
If one were to come into 5,000.00 what is the best way to make it grow with very little to no risk?
If you are incredibly risk-averse, you can invest in CDs from banks, or purchase treasury bills or commercial paper. Shop around for rates, but they simply won't be that great...
posted by OwenMarshall at 2:03 PM on January 21, 2010
posted by OwenMarshall at 2:03 PM on January 21, 2010
Start a CD ladder.
posted by torquemaniac at 2:07 PM on January 21, 2010
posted by torquemaniac at 2:07 PM on January 21, 2010
Risk is all proportional to time. If you might want some of the money tomorrow, put it in a high-yield savings account. If you might want it in 6 months, put it in a CD. If you don't really want it for 5-10 years, buy an ETF of the stock market and don't touch it.
posted by one_bean at 2:15 PM on January 21, 2010
posted by one_bean at 2:15 PM on January 21, 2010
And if you want more low risk (and hence low interest rate) options, think about federal instruments like treasury bills, notes and bonds, or other government issued securities like municipal bonds.
Lower risk stocks are usually the "blue chips."
The general rule is that the higher the interest rate or return, the higher the risk. And most people think you should diversify your investments to keep overall risk exposure low.
posted by bearwife at 2:25 PM on January 21, 2010
Lower risk stocks are usually the "blue chips."
The general rule is that the higher the interest rate or return, the higher the risk. And most people think you should diversify your investments to keep overall risk exposure low.
posted by bearwife at 2:25 PM on January 21, 2010
TIPS or I-Bonds; both slow-growing, very safe government-issued bonds.
posted by dbmcd at 2:27 PM on January 21, 2010
posted by dbmcd at 2:27 PM on January 21, 2010
Best answer: Least risk, least growth: Savings account or CD. In the United States these are FDIC-insured - the government guarantees that you will not lose your money. A CD will often pay a higher interest rate but you pay a penalty for early withdrawal and are locked into that rate.
Low risk: Bond mutual funds. These funds hold bonds, which are loans to governments or businesses. The issuers of the bonds pay back the borrowed money plus interest to the holders. The interest rates are higher than you bank accounts or CDs, but there is a risk of losing some money if an issuer goes bankrupt. A mutual fund lowers this risk some by buying bonds from dozens or hundreds of different issuers. The least risky bonds (e.g. ones from big companies with good credit ratings) will pay lower interest than riskier ones (e.g. from less established companies).
Higher risk but (probably) more growth: Mix of bond mutual funds and stock mutual funds. You should consider this if you want to save your money for a long time (10-15 years or more). Stocks are riskier than bonds and the chance of losing some of your money is greater, but over long periods of time they almost always have significantly higher returns than bonds. Expect them to go both up and down significantly in the short term, though.
Regardless of what you invest in, you may be able to increase the growth by not paying unnecessary taxes or fees. If you buy bonds, it might make sense for you to buy non-taxable bonds issued by governments. If you are saving for retirement, you should see if you qualify for any tax-sheltered account like an IRA or 401(k). Then you can avoid paying taxes on the interest you earn and/or reduce your taxes this year. (Your IRA or other retirement account can contain any of the above types of investments.) To minimize fees, invest through a respected low-cost company like Vanguard, which provides index funds with very low fees and better diversification against risk than most "managed" funds.
posted by mbrubeck at 2:32 PM on January 21, 2010 [3 favorites]
Low risk: Bond mutual funds. These funds hold bonds, which are loans to governments or businesses. The issuers of the bonds pay back the borrowed money plus interest to the holders. The interest rates are higher than you bank accounts or CDs, but there is a risk of losing some money if an issuer goes bankrupt. A mutual fund lowers this risk some by buying bonds from dozens or hundreds of different issuers. The least risky bonds (e.g. ones from big companies with good credit ratings) will pay lower interest than riskier ones (e.g. from less established companies).
Higher risk but (probably) more growth: Mix of bond mutual funds and stock mutual funds. You should consider this if you want to save your money for a long time (10-15 years or more). Stocks are riskier than bonds and the chance of losing some of your money is greater, but over long periods of time they almost always have significantly higher returns than bonds. Expect them to go both up and down significantly in the short term, though.
Regardless of what you invest in, you may be able to increase the growth by not paying unnecessary taxes or fees. If you buy bonds, it might make sense for you to buy non-taxable bonds issued by governments. If you are saving for retirement, you should see if you qualify for any tax-sheltered account like an IRA or 401(k). Then you can avoid paying taxes on the interest you earn and/or reduce your taxes this year. (Your IRA or other retirement account can contain any of the above types of investments.) To minimize fees, invest through a respected low-cost company like Vanguard, which provides index funds with very low fees and better diversification against risk than most "managed" funds.
posted by mbrubeck at 2:32 PM on January 21, 2010 [3 favorites]
Lowest risk, highest return: pay down any debt you have, and pay down the highest-interest debt first. If you're paying 18% on a credit card balance, your bank account will think you've invested risk-free and tax-free at 18%. IMPOSSIBLE! it will say. But you will smile mysteriously, tilt your fedora at a rakish angle, and saunter off down the street.
posted by stupidsexyFlanders at 2:40 PM on January 21, 2010 [8 favorites]
posted by stupidsexyFlanders at 2:40 PM on January 21, 2010 [8 favorites]
Oh yeah, debt repayment should definitely be near the top of the list. Another thing I forgot: If you do open a bank account, check out local credit unions and (reputable) online banks. You can probably find much better interest rates than at the big national banks.
MetaFilter's own jdroth lists some good online banks for savings and CDs at his excellent personal finance site Get Rich Slowly.
posted by mbrubeck at 2:55 PM on January 21, 2010
MetaFilter's own jdroth lists some good online banks for savings and CDs at his excellent personal finance site Get Rich Slowly.
posted by mbrubeck at 2:55 PM on January 21, 2010
If you are spendy, put it in a Roth IRA so it's harder to get back out. You look young, and may not have financial goals. Setting goals will help you reach goals.
posted by theora55 at 2:55 PM on January 21, 2010 [2 favorites]
posted by theora55 at 2:55 PM on January 21, 2010 [2 favorites]
Flanders made a great point, and it bears repeating. Don't do any of the "safe investment" stuff unless you are debt-free, aside from a mortgage. The return on your money is much better if you pay off debts with it.
posted by craven_morhead at 3:31 PM on January 21, 2010
posted by craven_morhead at 3:31 PM on January 21, 2010
There are couple questions you should have an answer to before you decide what to do here.
What is the money for? Savings is deferred spending. When the time comes, what are you going to spend it on? Is it for tuition? A car? A down payment on a house? An emergency reserve?
When are you going to need it? If you're wanting it to be a down payment on a house some day, but that day is years away, you can lock it up in all kinds of funds. If it's an emergency reserve, you might need it next week.
Don't be too risk adverse. Higher risk generally equals higher payoffs. On the other hand, if you invest your entire life savings into a company that is trying to build a space elevator you're kind of asking for trouble. Depending on your age and current situation the right answer might be to put 3000 into a CD, 2000 into an index fund or the like.
posted by Kid Charlemagne at 6:27 PM on January 21, 2010
What is the money for? Savings is deferred spending. When the time comes, what are you going to spend it on? Is it for tuition? A car? A down payment on a house? An emergency reserve?
When are you going to need it? If you're wanting it to be a down payment on a house some day, but that day is years away, you can lock it up in all kinds of funds. If it's an emergency reserve, you might need it next week.
Don't be too risk adverse. Higher risk generally equals higher payoffs. On the other hand, if you invest your entire life savings into a company that is trying to build a space elevator you're kind of asking for trouble. Depending on your age and current situation the right answer might be to put 3000 into a CD, 2000 into an index fund or the like.
posted by Kid Charlemagne at 6:27 PM on January 21, 2010
If you're debt-free and have emergency savings, I'd consider investing in yourself, in the form of training. If you pick something worthwhile, the returns from a few good training courses will be much greater than the barely-keeping-up-with-inflation return you'll get from a CD.
Another idea is startup money for entrepreneurship: buy equipment you need to start something on the side. You should be able to test most business ideas for much less than $5000.
(IANYA and I'm still in the paying-off-student-loan phase so haven't taken my own advice yet.)
posted by sninctown at 8:15 PM on January 21, 2010
Another idea is startup money for entrepreneurship: buy equipment you need to start something on the side. You should be able to test most business ideas for much less than $5000.
(IANYA and I'm still in the paying-off-student-loan phase so haven't taken my own advice yet.)
posted by sninctown at 8:15 PM on January 21, 2010
If you're younger, put in the exchange traded fund -- essentially a mutual fund that tracks larger indexes like the Dow without all the mutual fund costs going to managers......If you're not a banker or someone in investing for the vastly wealthy and themselves, this book will tell you why my advice, over the long term, is a smart move. Remember, this strategy is LONG TERM and would it would help if you bought when the usual irrational exuberance is not so high....best would have been a couple months ago, but wait for a big dip (like today) and feel confident in buying. Essentially, you're betting that the Dow will be around 20,000 a couple decades from now -- if it's not -- we're all screwed anyways.
posted by skepticallypleased at 1:08 PM on January 22, 2010
posted by skepticallypleased at 1:08 PM on January 22, 2010
If you don't have to touch the money for 10+ years, consider buying blue-chip stops like Coca-Cola, Nestle and Caterpillar. Or an index fund.
posted by thecolor12 at 8:52 AM on January 24, 2010
posted by thecolor12 at 8:52 AM on January 24, 2010
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posted by craven_morhead at 2:01 PM on January 21, 2010