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I have $5K to invest. What ought I do with it?
May 26, 2014 8:20 AM   Subscribe

It's from my lovely wife's recent inheritance. It's not a lot, I know, but enough that we don't want to just stick it in the bank.

I have a 401 K that does well (Vanguard), but Mrs Inamonkeysuit and I are thinking we would like to find something to do with this bit of money that might have a better rate of return. Or -- should we remain on the conservative side, given today's post-meltdown marketplace?
posted by Guy_Inamonkeysuit to Work & Money (13 answers total) 14 users marked this as a favorite
 
"I Have $[X] ... What Do I Do With It?!" (TL;DR: an image that sums that article up.)
posted by Harvey Kilobit at 8:23 AM on May 26 [14 favorites]


A somewhat similar post from yesterday you might be interested in reading http://ask.metafilter.com/262480/Stock-investment-for-greenhorns
posted by gillianr at 8:25 AM on May 26


You could give it to Metafilter, but if you don't want to do that, I agree with Harvey Kilobit's info...

If you've got a 401K, it sounds like you have some kind of a plan - $5,000 is not an amount of money that would make me seriously re-think my plan. If you're generally in good shape I might blow a little bit of it (like $500-$1,000 at most) on something fun, then stick the balance in the 401K.
posted by randomkeystrike at 8:28 AM on May 26


Increase your contribution rate to your 401k if you're not maxed out, or put the money into a Roth IRA. Your statement about rate of return shows this might be an opportunity to learn more about investing: a 401k doesn't really have a rate of return; your investments within your. 401k do, and almost every 401k offers an array of funds, so that you could, if you were so inclined, choose a fund that is somewhat risky but historically has returned somewhat more than others. Because for most people, 401ks contain funds invested for the long haul, they should have their 401k allocations typically oriented toward stock funds- if you want a higher rate of return than a 401k, you might want to check to see if your 401k is allocated solely to a money market or bond fund, and ask yourself why that is.

To be more specific about your question, if your respective 401k funds have employer matching and you aren't fully taking advantage of that, increase your contributions to get the full amount; the $5000 will offset that. If you do that already, then either further increase your 401k contributions, or put the $5k in a Roth. The higher your tax bracket , the more a 401k makes sense since it allows you to reduce your taxable income, but it also makes sense to consider if you have desirable investment options within your 401k (by desirable I mean index funds with super low expenses). If you open a Roth, open it with Vanguard and start by sticking it in their Total Stock Market Fund. If you already max out all tax advantaged options, open a taxable account with Vanguard and use this as a chance to decide what blend of stocks/bonds is right for you.
posted by MoonOrb at 8:46 AM on May 26 [3 favorites]


I don't think you're likely to beat a stock market index fund, like the S&P 500.
posted by J. Wilson at 9:16 AM on May 26 [3 favorites]


I don't think you're likely to beat a stock market index fund

Seconding this advice - once you've sorted out emergency funds, employer matches and other tax-advantaged retirement contributions, the best thing to do is to put the rest into a low fee index fund.

I never get tired of pointing people to VTI, the Vanguard Total Stock Market Index fund. Not just the 500 largest companies - this is a slice (a teensy microscopic slice) of the entire stock market. Basically, a bet that the US economy will continue to thrive in the long term. And it has an expense ratio of 0.05%, rather hard to beat.

Damn, Vanguard should pay me commissions. (They obviously don't.)
posted by RedOrGreen at 9:43 AM on May 26 [7 favorites]


This isn't the kind of money you do much of anything with. It shouldn't be a worry.

You just keep doing whatever you are currently doing and include this into your income stream.

So if you still have debt, save back $1-2K and put the rest on your debt.
If you have no debt, but lack liquid emergency cash add it to that.
If you are fully funding your retirement plans then throw it in an index fund or buy something you think will appreciate. I bought stock in a company for fun. It's outside of my regular portfolio, but I always wanted to say I owed some of this company and now I do. %5k won't make or break a retirement plan.
posted by cjorgensen at 11:18 AM on May 26


We have a 1/3, 1/3, 1/3 windfall policy. Your wife gets a third, it's her windfall. She gets to go bonkers with a third of it. A third goes into long term emergency savings or retirement, a third goes into something short term, like a vacation fund.

This policy saves us a lot of strife. Everybody gets a little windfall sometimes. This allows for the responsibility factor and for the tiny personal selfish fun factor.

I imagine if we ever saw a windfall greater than 5k, 10k, maybe we'd talk about it. But with a third of that (whatever, 1700? 1600?) she can get something special she wouldn't otherwise get, and it would also contribute to the family fund.

The thing about this is -- everybody gets a turn. Today it's her inheritance, tomorrow it's your annual bonus or retroactive pay raise that you get to see a third of.

For investments, I would just go dump it into an existing retirement account or emergency savings. Most likely emergency savings. Something readily accessible--emergency savings is an enormous psychological boost.
posted by A Terrible Llama at 5:01 PM on May 26 [1 favorite]


There are two tech stocks and one hail Mary I can recommend FWIW.

1) Facebook. No matter what you think about the site personally, they are dong the right things to increase revenue and the stock price. Currently it's $61 a share. It's very possible that the price could increase to $100 within a year.

2) Apple. They have just announced shareholder friendly actions that rival anything previously done. 7:1 split and possible addition to a major index. Movement from 600->750 is quite possible.

The hail mary: Bitcoin.
For more info here's a primer: Bitcoin: To Infinity or Zero?
posted by queue_strategy at 11:19 PM on May 26


Do not listen to Mefites or anyone else who is picking stocks. If I were you I'd put it in a mixture of Vanguard stock and/or bond funds depending on when I might want the money.
posted by Aizkolari at 6:58 AM on May 27 [1 favorite]


This advice only applies if you have your other financial bases covered: emergency fund, maxed 401k, a healthy retirement fund, no other pressing financial needs, and no particular need to see this $5k again.

If that's the case, consider a high risk/high reward non-diversified investment that you can take some ownership of, rather than just rolling your money into an index fund. This is obviously WAY RISKIER than buying $5k worth of VTI -- if things go so bad that VTI evaporates to zero, you're probably just buying bullets and food rations with gold and teeth at that point anyway.

All of that said, $5k is enough to get you a 1% share in a startup looking to raise a half million in capital. I was able to buy 1% of a small brewery for the same money. It's only been on its feet for a couple of years now and we have only received one distribution so far, but it's been a joy to see the money at work, buying fermenters, supporting marketing efforts, etc. It's an entirely different experience than watching index funds bump up and down. And if all goes well, the profit margins could be significant -- so far things are running to plan, which should produce 150% returns within 6 years. VTI won't drop to nothing, but it won't produce 150% returns either.

Again, it only makes sense if all of your other baskets have eggs in them, but it's something to consider.
posted by craven_morhead at 10:56 AM on May 27


Thanks everyone -- these are all good answers; Mrs Inamonkeysuit and I will discuss our options.
posted by Guy_Inamonkeysuit at 2:52 PM on May 30


And we've decided that we have more to invest than I had thought -- more like $30K. So it's a whole new ballgame. *shrug*
posted by Guy_Inamonkeysuit at 10:38 AM on June 2


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