How To Invest $10,000

Whether it’s from a lottery winning, an inheritance, an income tax refund or some other windfall, you’ll want to form a plan on how to invest $10,000 or whatever substantial amount you have received. Avoid the temptation to spend it and investigate ways to invest that money and make it grow into an larger amount.

  1. Diversify your $10,000 investment. There usually isn’t one single investment product that meets the criteria of high yield and low risk. For that reason, it is good advice to place that $10,000 into two or more investment products that is a mixture of low-risk and low-yield and high-risk and high-yield instruments. This gives some safety and stability to the portfolio while some of the money is placed at a higher risk, but with the opportunity to make a greater return on the principal.

  2. Municipal bonds can satisfy the low-yield, low-risk part of your $10,000 investment portfolio. Often referred to as "munis," municipal bonds are issued by state and local governments when they need to borrow money to fund various projects. Municipal bonds are very safe investments because they are backed by local or state governments. Although they do not give an interest rate as high as bonds issued by corporations, they are lower risk and they are often exempt from either state or federal income tax. Depending on your income tax bracket, this tax shelter could help you pay less income tax. Munis typically have a $5,000 minimum, so consider parking $5,000 of your $10,000 investment into either corporate bonds or municipal bonds.

  3. Certificates of deposit, or "CDs," are available at your local bank. These also can be considered to handle the low-risk, low-yield portion of your $10,000 investment portfolio. Your principal is 100 percent safe with a CD, as the money is insured by the federal government. Yields are typically only a few percent, but they have the advantage of giving you access to your money should you need it in an emergency. There will be a slight penalty, such as a loss of six months of interest, but CDs allow you to keep control of your money.

  4. Stocks and mutual funds can make up the more aggressive portion of your $10,000 investment portfolio. If you feel confident in two or three companies and you have followed the stock market, you may want to take $1,000 or $2,000 and buy shares of stock in several individual companies. Look for companies that pay a dividend because this will give you some additional return on your investment while holding the stock for long-term appreciation. Do not buy stock in two companies that are in the same market sector to better diversify your portfolio. For example, if you buy stock in a pharmaceutical company, buy your second stock in a technology company. If you are not well versed in the stock market, investigate placing $5,000 into a mutual fund that invests in aggressive stocks. Talk to an investment broker. The potential for growth of your investment is higher, but there is a risk that your initial investment can suffer loss. This is why it’s a good idea to diversify and invest $10,000 into both high-risk and low-risk products.

 

 

References:

 

Investing in Bonds

Markets in Depth

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