Dependable investment opportunities?
February 13, 2005 6:53 PM Subscribe
I have about 15,000$ saved up and was thinking of investing it in something. Whats the best thing? I want something that is SOLID and dependable so I was thinking of buying real-estate. Is that a good idea?
Real estate has pretty much peaked, and with $15K you'd have to borrow a lot to get a small house.
A few questions: how old are you? how long do you plan to invest the money? how much do you want to make on your investment? how much risk can you tolerate?
posted by nj_subgenius at 7:01 PM on February 13, 2005 [1 favorite]
A few questions: how old are you? how long do you plan to invest the money? how much do you want to make on your investment? how much risk can you tolerate?
posted by nj_subgenius at 7:01 PM on February 13, 2005 [1 favorite]
Best answer: It depends on where you're buying the real estate...you don't want to be caught in a bubble, and a lot of reliable sources- the Economist, especially- have been issuing warnings about real estate prices for the last two years. The best way to tell whether or not the area you're buying in is in the throes of a bubble, or how severe it is, is to look at the growth in sale prices and rents.
If rents and sale prices have grown near-equally, the sale prices accurately reflect supply- meaning that few people are pushing up prices through speculation. No bubble. If sale prices have outpaced rents, don't do it: you may end up owing more than your property is worth.
If you want to invest in real estate with less risk, Real Estate Investment Trusts might be the way to go. It's like a mutual fund, but with property...meaning you get some of the benefits of real estate, but it's more liquid...so if it doesn't turn out so solid, you can bail easily.
posted by paul_smatatoes at 7:07 PM on February 13, 2005
If rents and sale prices have grown near-equally, the sale prices accurately reflect supply- meaning that few people are pushing up prices through speculation. No bubble. If sale prices have outpaced rents, don't do it: you may end up owing more than your property is worth.
If you want to invest in real estate with less risk, Real Estate Investment Trusts might be the way to go. It's like a mutual fund, but with property...meaning you get some of the benefits of real estate, but it's more liquid...so if it doesn't turn out so solid, you can bail easily.
posted by paul_smatatoes at 7:07 PM on February 13, 2005
Solid and dependable has nothing to do with real estate.
posted by smackfu at 7:14 PM on February 13, 2005
posted by smackfu at 7:14 PM on February 13, 2005
a savings account? ;-)
seriously, emigrantdirect.com is now paying 3%.
posted by reverendX at 7:21 PM on February 13, 2005
seriously, emigrantdirect.com is now paying 3%.
posted by reverendX at 7:21 PM on February 13, 2005
Best answer: You can screen mutual funds through Morningstar.
Suggest no load funds with an expense ratio below 1%. Vanguard funds are a good start.
posted by nj_subgenius at 7:24 PM on February 13, 2005
Suggest no load funds with an expense ratio below 1%. Vanguard funds are a good start.
posted by nj_subgenius at 7:24 PM on February 13, 2005
No one can give you a dependable answer without carefully considering your entire financial position, including an assessment of how much debt you have, what demands your family and personal obligations would be, your plans for the future, and your tolerance for risk.
But I'll assume this is money that you don't need for anything else, and that you would like to see it grow but do not want a serious risk of it going down in value. If that is the case, then you want a money-market fund, such as the Vanguard Prime Money Market Fund (VMMXX). But there is a price for so much security: Your money will not grow very quickly at all. Consider a slightly more risky option, like a short term bond fund such as the Vanguard Short-Term Bond Index Fund Investor Shares (VBISX). To invest in either of those funds, go to Vanguard's web site, get their number, and give them a call. (I don't work for Vanguard or anything; I just think they have some great funds).
Both of those, by the way, are good places to put your money while you are saving up for a down payment on a home.
posted by profwhat at 7:33 PM on February 13, 2005 [1 favorite]
But I'll assume this is money that you don't need for anything else, and that you would like to see it grow but do not want a serious risk of it going down in value. If that is the case, then you want a money-market fund, such as the Vanguard Prime Money Market Fund (VMMXX). But there is a price for so much security: Your money will not grow very quickly at all. Consider a slightly more risky option, like a short term bond fund such as the Vanguard Short-Term Bond Index Fund Investor Shares (VBISX). To invest in either of those funds, go to Vanguard's web site, get their number, and give them a call. (I don't work for Vanguard or anything; I just think they have some great funds).
Both of those, by the way, are good places to put your money while you are saving up for a down payment on a home.
posted by profwhat at 7:33 PM on February 13, 2005 [1 favorite]
Invest in the index. Or the money market. Or government bonds. Or even corporate bonds.
Skip the mutual funds. The management expenses sap all strength out of them. Biggest rip-off going, IMO.
Once again it would be really damn nice to know what country the question-asker is living in. Because in Canada, you can invest in a number of labour-sponsored funds that could very well go gangbusters (Working Opportunity Fund in BC) that also give you a helluva tax break, effectively covering about a third of the investment cost. No idea if any such thing happens in the USA or Europe.
Or go find a DRIP (Dividend Reinvestment Plan). It'll automagically accrue stock as the dividends are paid out, plus you get to keep whatever stock gains are made.
Also note that in Canada you pay taxes only on the first 50% of some Canadian (ie. not foreign) stock investments. This is a mighty handy way of dodging some of the penalties associated with RRSPs (ie. when you withdraw, you'll be paying tax on the full 100% of your gains; plus RRSPs are not liquid).
posted by five fresh fish at 7:40 PM on February 13, 2005
Skip the mutual funds. The management expenses sap all strength out of them. Biggest rip-off going, IMO.
Once again it would be really damn nice to know what country the question-asker is living in. Because in Canada, you can invest in a number of labour-sponsored funds that could very well go gangbusters (Working Opportunity Fund in BC) that also give you a helluva tax break, effectively covering about a third of the investment cost. No idea if any such thing happens in the USA or Europe.
Or go find a DRIP (Dividend Reinvestment Plan). It'll automagically accrue stock as the dividends are paid out, plus you get to keep whatever stock gains are made.
Also note that in Canada you pay taxes only on the first 50% of some Canadian (ie. not foreign) stock investments. This is a mighty handy way of dodging some of the penalties associated with RRSPs (ie. when you withdraw, you'll be paying tax on the full 100% of your gains; plus RRSPs are not liquid).
posted by five fresh fish at 7:40 PM on February 13, 2005
Best answer: Some good advice so far (profwhat, five fresh fish), but the best piece of advice is: educate yourself and decide what investments are good for you. Do not, repeat, do not sink your money into a particular investment - real estate, stock, or mutual fund - based on what someone on the interwebs (even ask mefi) says.
First, ask yourself some hard questions about what you want to do with that $15K. nj_subgenius has aleady covered some of the basics, but to expand a bit:
1) What is your time horizon? Are you willing to invest it and let it sit until you retire? Will you want it for the down payment on a house that you live in, or a child's education, or just plain spending money at some point?
2) How much risk can you tolerate? Are you willing to risk losing 25% of your investment if you might gain 25%? Your question seems to indicate that your priority is not losing any of your principal - if so, you might want to look into CDs, savings accounts, and conservative index funds.
3) How much time are you willing to devote to tracking and managing your investment? Are you willing to research and manage your investments for several hours a week, or do you just want a place to park your money and forget about it?
You'll notice that I keeps saying "investments." One of the things that you really should consider is diversifying your investments - e.g., don't put all $15K in one place (real estate or otherwise), because this means that if that investment goes south, all of your principal is at risk.
Finally, do some research so that you understand the different risks and benefits of real estate versus mutual funds versus stocks. You can start with ask mefi; look here and here, for example (latter link goes to my own comment in a thread that has some interesting information). But there are tons of books and websites available.
Good luck!
posted by googly at 8:15 PM on February 13, 2005
First, ask yourself some hard questions about what you want to do with that $15K. nj_subgenius has aleady covered some of the basics, but to expand a bit:
1) What is your time horizon? Are you willing to invest it and let it sit until you retire? Will you want it for the down payment on a house that you live in, or a child's education, or just plain spending money at some point?
2) How much risk can you tolerate? Are you willing to risk losing 25% of your investment if you might gain 25%? Your question seems to indicate that your priority is not losing any of your principal - if so, you might want to look into CDs, savings accounts, and conservative index funds.
3) How much time are you willing to devote to tracking and managing your investment? Are you willing to research and manage your investments for several hours a week, or do you just want a place to park your money and forget about it?
You'll notice that I keeps saying "investments." One of the things that you really should consider is diversifying your investments - e.g., don't put all $15K in one place (real estate or otherwise), because this means that if that investment goes south, all of your principal is at risk.
Finally, do some research so that you understand the different risks and benefits of real estate versus mutual funds versus stocks. You can start with ask mefi; look here and here, for example (latter link goes to my own comment in a thread that has some interesting information). But there are tons of books and websites available.
Good luck!
posted by googly at 8:15 PM on February 13, 2005
It's worthwhile noting that, while it's a good idea to keep some cash, savings accounts do not tend to keep track with inflation. So, over the longer term, you actually lose money if you just let it sit in a bank account.
posted by coriolisdave at 8:54 PM on February 13, 2005
posted by coriolisdave at 8:54 PM on February 13, 2005
Best answer: Put most of it in a savings account for now (such as the 3% Emigrant account linked upstream). Open a Roth IRA. Put $4,000 in this year, $4,000 next year, etc., maxing it out each year until it's all in the account. Invest each chunk in an index mutual fund of some kind -- I personally like the S&P 600 small cap, as it tends to earn more than the large caps (at the price of a wee bit more volatility), although an energy sector and/or international index is probably going to do really well this year due to the rising price of oil and other resources and the declining value of the dollar.
It would be nice to do some dollar cost averaging by investing your money in smaller pieces, but to do that best you'd want to be able to put more money in whenever the index goes down. (If it's trending up, then contributing over a period of time will actually diminish your returns.)
You can withdraw your contributions from the Roth IRA at any time. You can't withdraw your earnings until you reach retirement age, but there is never any tax on them, and there are no mandatory withdrawals either. Remember, at about 7.2% annual return (very attainable) you double your money every 10 years. If you're 30 years from retirement, that $15,000 will turn into $120,000 and you'll never pay a dime of income tax on $105,000 of it.
If your employer offers a 401(k) with any kind of matching whatsoever, you should consider having part of your salary go into that, and then using your $15,000 to make up for the salary reduction. This way you actually get the income tax you paid on the $15,000 back (putting $15,000 into the 401(k) will cost about $10,000 in salary reduction). The employer matching (if you have it) means you're earning X% right up front. (I.e., if you put in 10% of your salary, and your employer matches the first 1%, you have made 10% just by putting the money in.) You can't put it all in this year, but you can certainly put most of it in. Of course, you generally can't touch this money until you retire, although there are exceptions for medical expenses, education, first-time home purchase, and so on.
posted by kindall at 9:16 PM on February 13, 2005
It would be nice to do some dollar cost averaging by investing your money in smaller pieces, but to do that best you'd want to be able to put more money in whenever the index goes down. (If it's trending up, then contributing over a period of time will actually diminish your returns.)
You can withdraw your contributions from the Roth IRA at any time. You can't withdraw your earnings until you reach retirement age, but there is never any tax on them, and there are no mandatory withdrawals either. Remember, at about 7.2% annual return (very attainable) you double your money every 10 years. If you're 30 years from retirement, that $15,000 will turn into $120,000 and you'll never pay a dime of income tax on $105,000 of it.
If your employer offers a 401(k) with any kind of matching whatsoever, you should consider having part of your salary go into that, and then using your $15,000 to make up for the salary reduction. This way you actually get the income tax you paid on the $15,000 back (putting $15,000 into the 401(k) will cost about $10,000 in salary reduction). The employer matching (if you have it) means you're earning X% right up front. (I.e., if you put in 10% of your salary, and your employer matches the first 1%, you have made 10% just by putting the money in.) You can't put it all in this year, but you can certainly put most of it in. Of course, you generally can't touch this money until you retire, although there are exceptions for medical expenses, education, first-time home purchase, and so on.
posted by kindall at 9:16 PM on February 13, 2005
Skip the mutual funds. The management expenses sap all strength out of them. Biggest rip-off going, IMO.
Nothing like a sweeping generalzation to scare an investing newbie, fff.
His point is overstated but yes, if you go the mutual fund route, watch the expenses. Vanguard funds are usually good on that score (e.g., 0.18% expense ratio for Vanguard's S&P 500 Index), and there are others as well.
posted by pmurray63 at 9:47 PM on February 13, 2005
Nothing like a sweeping generalzation to scare an investing newbie, fff.
His point is overstated but yes, if you go the mutual fund route, watch the expenses. Vanguard funds are usually good on that score (e.g., 0.18% expense ratio for Vanguard's S&P 500 Index), and there are others as well.
posted by pmurray63 at 9:47 PM on February 13, 2005
You will need another $80,000 to by one share of Berkshire Hathaway. /aside
posted by anathema at 3:53 AM on February 14, 2005
posted by anathema at 3:53 AM on February 14, 2005
Yes, class A Shares of Berkshire Hathaway cost $91,700. But you will only need $3,058 to buy one share of Berkshire Hathaway Class B, which is basically like buying a 1/30th interest in a Class A share.
posted by yankeefog at 5:25 AM on February 14, 2005
posted by yankeefog at 5:25 AM on February 14, 2005
Response by poster: I am in Canada (Montreal).
>how old are you?
I'm 21
>how long do you plan to invest the money?
5-6 years at least
>how much do you want to make on your investment?
Funny question, as much as possible, but I'm patient.
>how much risk can you tolerate?
I'm not really sure what tolerate means. Mentally? It is money that is "disposable". But I wouldn't take losing it very lightly. This took a while to amass, it's not 3 months savings.
posted by Napierzaza at 5:33 AM on February 14, 2005
>how old are you?
I'm 21
>how long do you plan to invest the money?
5-6 years at least
>how much do you want to make on your investment?
Funny question, as much as possible, but I'm patient.
>how much risk can you tolerate?
I'm not really sure what tolerate means. Mentally? It is money that is "disposable". But I wouldn't take losing it very lightly. This took a while to amass, it's not 3 months savings.
posted by Napierzaza at 5:33 AM on February 14, 2005
Invest in commodities you think are going to be valuable in the next decade. Gold, silver and platinum all have strong dual-uses in electronics and scientific industries, and have the ability to ride out recessions like the coming one. Stay away from property unless your rent right now is so high that buying would be cheaper.
posted by Civil_Disobedient at 5:56 AM on February 14, 2005 [1 favorite]
posted by Civil_Disobedient at 5:56 AM on February 14, 2005 [1 favorite]
Response by poster: Buying is certainly not cheaper than rent. A duplex on my street that is the same model that I live in is 550,000$. Just one unit is going for 370,000$.
For my whol apartment it's 1075$(CAN) a month.
Maybe I'll wait for a referendum. I hear a few years ago prices were about a quarter of what they are now.
Thanks everyone, AskMefi is always a good starting point for more research.
posted by Napierzaza at 6:43 AM on February 14, 2005
For my whol apartment it's 1075$(CAN) a month.
Maybe I'll wait for a referendum. I hear a few years ago prices were about a quarter of what they are now.
Thanks everyone, AskMefi is always a good starting point for more research.
posted by Napierzaza at 6:43 AM on February 14, 2005
If you're thinking of buying a place to live, remember that you will be happier if you invest in, for example, a shorter commute rather than a larger place. Convert your extra dollars, which are tokens of your time spent at work, back into your time. If you invest properly, you will get more time for your dollars than you spent earning those dollars.
posted by pracowity at 7:50 AM on February 14, 2005
posted by pracowity at 7:50 AM on February 14, 2005
For a low or no investment risk you might consider something like a CD ladder.
posted by paulychamp at 8:12 AM on February 14, 2005
posted by paulychamp at 8:12 AM on February 14, 2005
Best answer: AHA! Canucks, you really gotta start proclaiming your nationality when you post questions.
Napierzaza, you need to subscribe to Canadian Moneysaver magazine. It is without a doubt the best of the investment magazines. It is agnostic: it presents any number of investment strategies, opinions, conflicting opinions, and advice of all sorts. It relies on you to become informed and decide what techniques you wish to use.
It won't solve your challenge in the short term, but after a year or two you'll have become familiar with various approaches to investing and will be ready to strike out on your own.
posted by five fresh fish at 9:14 AM on February 14, 2005
Napierzaza, you need to subscribe to Canadian Moneysaver magazine. It is without a doubt the best of the investment magazines. It is agnostic: it presents any number of investment strategies, opinions, conflicting opinions, and advice of all sorts. It relies on you to become informed and decide what techniques you wish to use.
It won't solve your challenge in the short term, but after a year or two you'll have become familiar with various approaches to investing and will be ready to strike out on your own.
posted by five fresh fish at 9:14 AM on February 14, 2005
Real estate, a single share of any stock, any small basket of commodities -- these are all bad investment suggestions for you. If you want "dependable," then you want diversified.
That means, ideally, more than one class of asset, and a reasonable diversity within each class. A combination of market-indexed stock funds and broadly diversified bond funds (consider both governmental and corporate bonds) is not a bad start.
The key is either to choose funds which have very low churn rate (and therefore low management fees) or to do the work to pick for yourself a sufficiently broad basket of investments. If there's some event which would seriously dent your portfolio but wouldn't cause the economy overall trouble, then you're underdiversified.
posted by grimmelm at 7:54 AM on February 15, 2005
That means, ideally, more than one class of asset, and a reasonable diversity within each class. A combination of market-indexed stock funds and broadly diversified bond funds (consider both governmental and corporate bonds) is not a bad start.
The key is either to choose funds which have very low churn rate (and therefore low management fees) or to do the work to pick for yourself a sufficiently broad basket of investments. If there's some event which would seriously dent your portfolio but wouldn't cause the economy overall trouble, then you're underdiversified.
posted by grimmelm at 7:54 AM on February 15, 2005
This thread is closed to new comments.
posted by caddis at 6:58 PM on February 13, 2005 [1 favorite]