Best way to Invest 10K
Best way to Invest 10K I receive this question super frequently. Everyone always wants to know. They have 10K and they want to know the Best way to Invest 10K. It usually goes the same way. They want some sort of hot and exciting sure thing and I instead tell them that they should open a Vanguard account and use one of the Target retirement funds or simply put their money in a combination of a Total Stock Market Index Fund and a Total Bond Fund. My current break down with interest rates so low would be:
90% VTSMX Vanguard Total Stock Market Index Fund Investor Shares
10% VBMFX Total Bond Market Index
Why so few bonds? Because there is an enormous amount of interest rate risk at the time I write this and rising interest rates are very risky for bonds as the Fed uses interest rates to stop inflation. When you’re looking at a market with 0.25% base rate and quantitative easing pushing rates down there is an enormous amount of pressure pushing rates down that could easily be lifted. Then bonds will result in losses.If you want you could use a different break down but this is as good of a start as you’ll get for present conditions. If the market were a bit lower I would even recommend 100% stocks.
The key is discipline don’t stop with this 10K, set aside more money and divide among-st the future and slowly add more and more. You might be saying what? Index funds? Why? Boring! Because studies have shown the most significant factor for investors is the fees they pay and index funds minimize them and they allow you to focus singularly on accumulating more shares. The more disciplined you are at doing so when markets fall the better your result will be. As markets rise and interest rates rise, you rise the percent of your bond purchases and bond allocation too. The average mutual fund open to you have so many dollars it manages and charges so large a fee that it becomes very difficult to beat the indices. You could learn about alpha, beta and Sharpe ratios out the nose and use complex hedging structures and in the end you’ll be doing what Wall Street wants you to. You’ll be trading and generating them fees. Wall Street wins when you trade. The two best ways to go are to decide to throw up your hands to accumulate shares indexing via being a defensive investor. Or you could be the enterprising investor. The reason I didn’t suggest how to invest in an individual company is because you need a proper investing education before you learn what to invest in and how to invest correctly. Investing is a boring process of not just compounding returns but compounding knowledge. If you want to learn and you’re the type that isn’t afraid of reading and pouring through large amounts of information or documents and large amounts of study. If you have a temperament that allows you to stay calm and act rationally in downwards markets. If you love gotcha moments because you found something everyone has missed. If you don’t mind doing nothing and you don’t get caught up in the heard mentality in bubbles then….
Those will get you on the road to learning what index funds are and how to invest. If you’re not deterred by a lot of reading and a lot of hard work that never ends then continue on to our Invest Correctly page which will get you on the never ending road to becoming what the Intelligent Investor refers to as the enterprising investor.