Last month, I wrote a post on the best way to invest 100k for those seeking to build wealth starting with $100,000 or more. Since a lot of people may not have 100k to start with; I thought it would be interesting to construct a post for those seeking to start investing with less money. There are a number of great investment options for those looking to start investing with a few thousand dollars in cash. Let’s take a look at the best ways to invest 10000 dollars based on your risk tolerance.
I believe that mutual funds and exchange traded funds are the best investment option for those starting to invest with less than $10k. We will examine options for conservative investors, risk taking investors, and income seeking investors.
Easy Ways To Invest 10000 Dollars
Buy a Balanced Fund
Balanced funds are also known as hybrid funds because they invest in separate asset classes. Balanced funds combine stocks and bonds in one fund. Most balanced funds contain a stock component, bond component, and money market component. The money market portion is for funds that are not yet invested.
Balanced funds typically have a stock allocation between 50 to 70%. The bond allocation will run between 30 to 50% of the portfolio. Balanced funds give investors provide investors with a margin of safety based on their blended approach. When bonds are doing poorly, the stock portion will thrive. When stocks are doing poorly, the bond portion provides protection. Balanced funds reduce risk while providing steady returns.
Buy an Index Fund
I have worked as an investment advisor for a number of years making a great deal of money for both my clients and myself. My job entailed finding the best investment choices for clients through active management. While I personally purchase individual stocks for my own portfolio,; I will be the first to admit that index funds are the best investment vehicle for the average investor.
Index funds provide low cost stock market diversification for investors. A S&P 500 exchange traded fund is simple to purchase through any online broker such as Etrade, TD Ameritrade, Fidelity, and others. Index funds provide broad diversification in the stock market with very little cash. Index funds give you the total return of the overall market without having to be an investment guru.
Risk Taking Investors
Buy a Small Cap Fund
Small cap stocks are the riskiest equity investments in the whole market. Small cap stocks suffer the most during market downturns but they also tend to perform the best during economic booms. Small cap funds are for investors seeking maximum growth over a 5 to 10 year time period.
The VIRTUS KAR Small Cap Growth I (PXSGX) has generated a 23% average annual return over the past 3 years and a 18.75% return over the past 10 years. The Lord Abbett Micro Cap Growth I Fund (LMIYX)has returned 18.25% over the past 10 years. Based on the rule of 72, these investments have doubled investor capital in under 4 years.
Buy an International Growth Fund
International funds invest outside of the United States market. International funds often have aggressive growth strategies by seeking out emerging market opportunities. Over the past decade investors have flocked to the BRIC nations (Brazil, Russia, India, China). An international fund can provide growth during recessionary times in domestic markets.
The Morgan Stanley Institutional Global Opportunities Fund (MGGIX) has returned just under 20% annually over the past decade by investing in large cap foreign stocks. Emerging market exchange traded funds like the iShares MSCI Emerging Markets ETF (EEM) provides international exposure with dividend income. Keep in mind that foreign small and midcaps funds are far risker than foreign large cap funds.
Income Seeking investors
Buy a Dividend Fund
At Multiply My Money, we are fans of generating dividend income as it helps to increase investment returns. Dividend funds generate big fat juicy dividend yields which places more cash in your bank account and portfolio’s bottom line. Dividend funds provide a nice balance of growth and safety for income investors.
Funds like the Vanguard High Dividend Yield Index Fund (VHDYX)have produced a 14.6% annual return over the past decade while providing investors with a 3% yield. The T Rowe Price Dividend Growth Fund (PRDGX)has given investors a 14.5% annual return over the past decade. 65% of the funds stocks are dividend payers.
Buy a REIT Fund
REIT stands for real estate investment trusts. REIT’s invest in commercial real estate like office buildings, retail malls, apartment complexes, and other business properties. Real estate investment trusts can invest in the common stock of companies connected to the real estate industry. REIT’s are loved by income investors because they have to pass 90% of their profits back to investors in the form of dividends.
The TIAA-CREF Real Estate Securities Fund (TRRSX) is a solid REIT fund returning over 15.3% annually to investors over the past decade. The fund has a relatively low risk profile for a real estate investment trust investing over 80% of its funds in real estate securities.
Best Ways To Invest 10000 Dollars