Doubling $15000 in ten years
April 15, 2005 7:25 AM   Subscribe

Let's say I've got 15,000 dollars and I want to double it in ten years but also not completely tie it up in the event I need it. No Real Estate Index Funds. What should I do?

I realize there was a thread a few months ago about investing 15000 dollars, but I'm particularly concerned with not tying it up completely.
posted by spicynuts to Work & Money (15 answers total)
 
If you can achieve about 7.2% growth it will double in ten years. I would go with the stock market. Mutual funds and index funds are easiest, individual stocks are more fun and you can control when you get your capital gains. Stocks can always be sold if you want to get your money out and use it early.
posted by caddis at 7:35 AM on April 15, 2005


I think I'm looking for a little less risk than a ten year investment in the stock market. I have mutual funds and stocks that I use for long term. I'm looking for more stability in the short term, particularly given the way the economy seems to be headed.
posted by spicynuts at 7:47 AM on April 15, 2005


A-rated 10-year paper yields in the 6% neighborhood, so you won't be able to get where you want to go with decent quality corporate bonds.

I would suggest looking at "World Allocation" and "Global Balanced" mutual funds-- these (generally) invest in both stocks and bonds, throughout the developed and developing worlds, and will likely put up 7%/yr over 10 years with less variance than most similar investments. Spend some time on Morningstar, and you'll see (I think) much less volatility than you would from a traditional US Equity fund.
posted by trharlan at 7:51 AM on April 15, 2005


If inflation edges up then achieving 7.2% with low volatility should be a breeze. When I was in school I used to put my loan distribution into a money market fund paying over 8% and then pay myself a stipend out of that each month. Those days are gone, but could easily return. Finding 7.2% growth with low volatility is going to be tough these days.

Here is a fun little essay on investing (although the rest of his site might turn your stomach).
posted by caddis at 7:56 AM on April 15, 2005


I take back what I said about stomach turning. Upon a more in depth review I appear to have initially missed the satirical nature of his materialism writings. His whole site is actually filled with lots of good stuff. His Career Guide for Engineers and Computer Scientists is particularly good.
posted by caddis at 9:20 AM on April 15, 2005


Caddis: Cool essay, although yeah, the rest of site is um, not so cool. Thanks!
posted by Boydrop at 9:56 AM on April 15, 2005


Caddis' original projection was on the spot. 7.2% is an unlikely return unless you take fairly signifiant risk over a 10-year period. If you want to double your money in ten years, pony up to Berkshire Hathaway Class B and you may have a good chance. Otherwise, your reactions indicate a preference toward retention of capital rather than aggressive growth.
posted by nj_subgenius at 1:27 PM on April 15, 2005


I don't see you achieving your desired return without being in the stock market. CDs and bonds just aren't going to get you there. A long-term bond fund might provide that kind of interest, but your principal will get clobbered if when interest rates climb, so you definitely don't want to do that.

I'm not sure what you mean by "not tying it up completely." Assuming you don't pick obscure/esoteric investment -- and you shouldn't -- you should be able to liquidate mutual funds, ETFs or stocks quickly if necessary.

I'd put maybe 50-60% into a broad US index (S&P 500 or a total stock market, etc.) and split the rest between a bond fund (index or just a well-run, low-cost active one) and an international fund of some type. Diversification is your friend: it can help smooth out the dips in case you suddenly need to cash out, while still enabling you to achieve most of what you'd accomplish with stocks only.

Total safety or doubling your money in 10 years -- pick one. And I'll second trharlan's advice to go read up at Morningstar.
posted by pmurray63 at 2:38 PM on April 15, 2005


nj_subgenius's suggestion is wrong for about a million reasons.

1. It flies in the face of Modern Portfolio Theory. You're passing up an opportunity to diversify risk away.

2. Equities, on average, have returned approximately 10% per year. Not counting the 1930s, the worst large company index performance over a decade was 5.9%/year. Intermediate-term government bonds have returned, on average, 5.4% per year. A 50-50 portfolio of these assets would have returned, on average, 7.7%.*

3. Berkshire is primarily in the insurance business. If you want to avoid REITS because they are interest-rate sensitive, you ought not buy Berkshire, which will exhibit similar sensitivity.

4. He uses overconfidence and the representativeness heuristic.

I could go on.

*I cannot find my hand-entered Ibbotson spreadsheet that could quantify these risks exactly, so I took decade-by-decade data from SBBI. Because of this, I was only able to measure "hard decades," i.e. 1970-1979, and not 1965-1974, 1966-1975, etc. This would not effect the results dramiatically.

I'd put maybe 50-60% into a broad US index (S&P 500 or a total stock market, etc.) and split the rest between a bond fund (index or just a well-run, low-cost active one) and an international fund of some type. Diversification is your friend: it can help smooth out the dips in case you suddenly need to cash out, while still enabling you to achieve most of what you'd accomplish with stocks only.

That's what a Global Balanced Fund does. You may be able to save on fees by indexing with three different funds, but I wouldn't bet on it.
posted by trharlan at 2:53 PM on April 15, 2005


nj_subgenius's suggestion is wrong for about a million reasons.

All I know is, I had a thousand dollars back in 1980 and the choice to invest in Berkshire Hathaway or Templeton International. I chose the latter because it sounded more diverse, and have been kicking myself ever since.

Past performance is no guarantee of future success, but still....
posted by IndigoJones at 6:53 PM on April 15, 2005


Not that familiar with them, trharlan, so I defer to your knowledge. But I might be able to beat those fees with 3 Vanguard funds...
posted by pmurray63 at 11:17 PM on April 15, 2005


Although Berkshire is undoubtedly a great company another reason to avoid it (as a significant part of your holdings) is Warren was born in 1930 and has been running the company since 1965 or so.

I had five shares that I dumped, partly because the succession issue wasn't totally clear to me. Berkshire is very much a cult o'Warren and his right hand man, Charlie Munger, isn't much younger.

Personally I like any income producing, monthly paying closed end bond fund or ETF, especially when they are trading a a discount to Net Asset Value. This site can help you identify securities to purchase. You shouldn't have any trouble getting about %7 from a well diversified portfolio. You should avoid concentration risk; that is, don't put all your eggs in one basket or all your cash in one security. If you don't have enough money to purchase about a dozen different issues, you're better off taking a lower yield by getting into a professional managed mutual fund.

I'm currently generating about %11.7 on my asset base, but I've got some long terms holdings that are priced much higher now (yield's lower if you were to purchase), and I've taken on a lot more risk then you're interested in.

On the other hand, last summer I put about %25 of my investable assets into Gold and Silver. I hated giving up monthly cash flow, but those US deficits ain't going away soon and I'm betting on inflation to roar back big time.
posted by Mutant at 2:43 AM on April 16, 2005


Mutant...what's the best way to invest in precious metals? I had read something somewhere about funds that specialize in them, but can't remember. How do I do it?
posted by spicynuts at 7:41 AM on April 16, 2005


Gosh I can't comment on a best way, but this page talks about several ETF's including the one you were probably thinking of, GLD, which listed last year on the New York Stock Exchange.

Some folks prefer to acquire shares of miners instead of the actual metal (because of storage costs). If you select this option I'd recommend miners who are unhedged; that is they don't sell their product forward, and can benefit from changes in the current market price (aka spot price in financial jargon).

I purchased the gold and silver I'm holding through Fidelity, who stores the metal and charges a quarterly fee. I don't think I'd recommend them as their metals commissions are a lot higher than other firms I've investigated recently. I purposely avoided any fabricated metals (i.e., Kruggerands, etc) as they trade at a premium to the underlying bullion and I'm looking to hedge inflation.

I've been looking at GoldMoney as they allow you to buy and sell online, in multiples of a gram, pretty much 24/7. I think it would be a fun way to save & purchase gold at the same time "...an afternoon in the beer garden or a couple grams of gold?..." It sorta puts consumption in perspective.

Note that I haven't traded with these folks at all, so please consider the appropriate due diligence before sending them money. Best of luck with your investment goals!
posted by Mutant at 8:40 AM on April 16, 2005


Wait, spicynuts, you seem to be risk averse when it comes to stocks yet you want to place a bet on precious metals? They are even riskier than stocks.
posted by caddis at 3:26 PM on April 17, 2005


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