I have some money that is currently sitting in a savings account, quite safe, but earning almost zero interest. Let’s say $10k - $15k. I would like some thoughts on possible investment options. I am primarily interested in personal experiences, but anyone can chime in.
Factors to consider:
This is flexible money for me. Meaning I already have a substantial 401(k) account and I will be investing just a portion of my savings, leaving more than enough for emergencies, etc.
I have zero debt, other than my mortgage, which is currently at 2.85% with a very manageable monthly payment.
I am really just looking to earn more interest on this money than in a traditional savings account.
So, tell me about some options. REITS? P2P lending? Copy trading? All the others I haven’t even mentioned?
How much, if any, risk are you willing to take and how long are you willing to have the money locked up? There’s lot of options between throwing it at the stock market and buying a CD.
Risk level somewhere below the Roulette wheel, but higher than Treasury bonds. The money can be tied up for awhile. I have other options if I need something liquid.
Any money I don’t plan to spend in the next 9 years in in VTSAX, the Vanguard Total Stock Market Fund Admiral Shares. If I need it in years 3 through 9 I keep it in VBTLX, the Vanguard Total Bond Market Index Fund. Anything I need in the next two years is kept in VUSFX, the Vanguard Ultra-Short-Term Bond Fund. I used to keep a CD ladder for the short term money, but the rates are just too low to make that a viable place to store cash.
And the problem with CD rates being so awful right now is that if you lock up your money for 5 years and savings rates swing back up, you’re losing money (and they can’t go down all that much lower).
The Index funds are usually good.
I like dividend stocks with auto reinvest.
REITs are interesting as they pay good dividends typically and can be fairly good growth stocks but at far more risk than a Blue Chip that pays good dividends.
A lot of predictions that there will be a market correction soon, it may pay to wait for the another sizable market drop and then invest.
As an example, last year I took advantage of horrific downturn to buy Disney as it plummeted to an extreme bargain of around 95. Currently it is nearly double that a year later. But these are rare. I actually question if it isn’t overpriced currently. I thought within 2 years of my purchase it would be over $150 again.
CDs are a terrible, terrible choice. Please don’t waste your time on those.
The commercial real estate industry is going to be turned sideways by the longer-term consequences of COVID. Nobody has a clue how those chips are going to fall or when. So for that reason REITs have a lot more future risk than is really priced in. You might buy one that happened to hold what will turn out to be the winning portfolio. Or you might buy the other kind. So REITs are off my list.
One way to look at it is that if $10K - 15K is not material to your overall wealth, then whether it earns zero percent or 10% (= $1K - 1.5K/yr) is also not enough to really move your needle. Which means you really can’t do something too bad or too good with it, other than maybe loose the lot.
Assuming the rest of your assets are decently diversified, this might be your “mad money” to place on more speculative bets. How do you fancy SpaceX will do? One of the pure play EV companies? If you double-plus your money that’ll move your overall needle. If whatever you buy just turns in the same performance as SPX or VTSAX it won’t.
I have a pal who bought into BTC a few months ago with similar money (on his scale). Could’ve just dumped it into index funds, increasing his balance by 1 percent. Instead he figured to go for the gusto. So far he looks pretty smart. FTR I pooh-poohed his decision at the time. And I haven’t emulated it myself. But I’m coming into my own heavy excess cashflow season soon and may well.
That’s a good point, dividend stocks are a strong contender, especially in taxable accounts where you can take advantage of the hugely favorable tax rates. A couple filing married and jointly can have an income of half a million dollars per year and only pay 15% tax on dividend income, and if their income is less than $80,000 the dividend tax rate is zero point nothing. Interest is taxed the same as regular income.
You can also take a look at PGX or PFF. They’re ETFs based on preferred stock. It pays a ~5% dividend, not interest, and except for spiking down in price when the world gets really scared, has fairly low volatility. So if you don’t need the money for awhile and know you won’t need it as your first sell tranche in a crisis this might be a decent choice.
I lost my job a few months in. In fact on the same day my Mom fell and it was determined she could no longer live on her own. The only positive is we were downsizing so once we got through all the hell that was last year with the added hell that was selling our place and finding a reasonable but cheaper place for us (and oh fixing up, emptying & selling my Mom’s place to as a bonus headache). We did end up with extra cash to invest and lower monthly payments.
I should have rolled my 401Ks into 1 IRA long before last year. I would have been in a better place for last years insane market. I’m kicking myself for trusting in company plans over my own ability.