What investment will yield the greatest return in a year or less?

In My Humble Opinion
1

With it being Christmas, I recieved some money that, paired with earnings and personal money, came to be around $500 US. Being a kid, I would like to invest this amount into as many accounts as possible to gain as much as possible for college and to have a lump sum of money I can move when need be; like to invest into an IRA, bond, or 401k. Also, I have around $900 in a state savings account that I could probably move for a better ROI.

Anyways, some people have suggested mutual funds, I personally like money market funds, and knowing so very little of either I’m unsure as to whether even both of these are the best.

So, what would you do? What is my best option?

2

You’re looking for opinions, so off to IMHO.

samclem GQ moderator

3

Be prepared for a lot of different opinions on this matter.

I’m not a financial analyst–and you should consult someone who is–but I know that answering your question depends on a lot of different factors. For instance, how much time do you have? How much risk are you comfortable with?

The stock market historically has yielded good returns on investment, but there are always down periods. Unless you invest in a “dog” stock or mutual fund, you should make a return in time, but that time period could be many years. I know this, in part, because I invested in several mutual funds just before the big crash a few years ago and lost thousands of dollars. (Had I waited a few months, I could have invested while everything essentially was “on sale.” Ah, the value of timing.)

Only recently–and through selling off a couple of those funds and investing in others–have I recouped my original investment and started to see it grow. Now, because I don’t plan on tapping into my investments for another 15 years, I’ve got time on my side to let it grow and should do fine. But if I had to cash it out today, I’d have been better off putting my money somewhere else, maybe even in a long-term CD.

Investments in less volatile vehicles, like CDs and savings accounts, generally provide less return. Right now, with interest rates for loans low (but rising), the interest rates for CDs and savings accounts are also quite low.

Remember, tax implications and inflation can really whittle down your investment. Talking to a CPA as well as a financial analyst is a good idea to better understand how these factors impact your investment.

Now, here’s something to consider: You want to save for college, which is commendable, but you may also qualify for financial aid when the time comes. In general, assets which you have to pay for college are subtracted from the total aid package that you might be offered. In other words, it’s possible that if you save a thousand dollars for college that the college might decide that rather than award you a thousand dollars (or a percentage) in aid, it expects you to use your own money.

Unless things have changed since I was in college, you must report the amounts you have in savings accounts and the like when filling out the Financial Aid Form. However, if you put that money into something less tangible on paper–such as antiques that might increase in value–you may not have to report it. Thus, you might get a bigger financial aid package while still holding onto your investment, which can be sold later. Of course, investing in such things as antiques is highly speculative and much financial aid nowadays comes in the form of loans, but it’s something to consider.

4

Risk - well, risk is something I have to consider, I know; if possible I would like someone to put that in their response. For instance, money market funds are high risk by definition but in their entire history - all 30 years - none have folded.

My time frame is an incredibly short time. A year, maybe a little more, maybe a little less.

Gassy Man - When the time comes, I’m sure I’ll find away to get the most money legally possible for college financial aid, with whatever that entails. My concern now is to build the account, get some money, and possibly start investing for retirement. Ideally, I’ll gain enough money that I can make significant gains if and when the stock market crashes again by investing intrest I have gained over the years.

5

I’d put it all on this stock:

http://finance.yahoo.com/q?s=SHRN.OB

Very HIGH risk, but potentially high rewards too.

6

Why that stock in particular?

7

Hmm, well, you could always consider day trading, which is a HIGHLY risky venture. Still, I knew someone who bought himself a $500,000 home through day trading . . . only to lose it a year later when the stock market went south. Other than that or a winning lottery ticket, I’m not sure there’s much out there to offer the possibility of a strong return on a small investment in a year’s time. Oh, I suppose speculating on futures is a possibility, too. Isn’t that what Hillary Clinton was reputed to have done, turning a small investment into a fairly large one in a year?

Remember, too, the opportunity cost of any investment: The money you tie up in one thing could potentially be used in something else . . . which could turn out to be more meaningful or rewarding in the long run.

8

A “penny stock” that appreciates 500% over the course of a year is going to be your best return, but picking the one that’s going to appreciate and not just stagnate is tricky business. If I knew how to do it, do you think I’d be blabbing about it online? No, I’d be a hojillionaire. So, yes, it’s possible. But so is winning the lottery.

Predicting whether 2005 is going to be a good year for stocks or bonds in general is slightly easier; interest rates are on their way up from a historic low, so buying bonds now would be foolhardy. With your prediction about how a sector of the market will do, you can invest in a mutual fund or an index fund. Each of these is like an investment club run by an investment firm, giving you the advantage of diversity without having to go out and actually purchase one of each of the securities represented in the fund. Diversity helps and hurts: it makes everything “a little more average.” Don’t expect radical returns from a diversified investment.

I own Vanguard’s S&P 500 Index Fund (VFINX) which tracks the S&P 500 Index. It performs precisely as well as the S&P 500 index, but I don’t need to buy and sell holdings in 500 different companies (paying commissions each time) to make it work. I just buy a share, pay a very small fee to the manager of the fund, and watch my money grow at the same rate as the market. “Big Deal,” you say, “anyone can match the market’s growth.” But depending where you get your information, somewhere between 65% and 75% of actively-managed mutual funds fail to beat the market – and active management costs more. You will hear lots of disclaimers about what the market won’t promise, because things like September 11th can ruin a market’s momentum. However, if times are good, the S&P 500 will make about 7% for you, year in and year out. It’s a good long-term investment.

A CD or money market delivers guaranteed returns; you’re essentially letting a bank borrow your money and invest it, and demanding 4% interest at the end of the term whether or not they can manage to make that much (Hint: they can, and you probably can, too). Very little risk in this approach though; you know that you’ll get an extra $20 at the end of term if you invest the $500 at 4%. $20? That’s not much at all.

Oh, and one more thing: you’re going to have to pay a commission on any securities trades you make, and that commission is going to hurt your bottom line. You could pay as much as $40 to make one buy/sell set of transactions, since you’re working with such a small amount of cash. Once you take that into account, a money market or CD starts to look really attractive.

The returns that $500 can get you on any non-risky investment are so small that you’d be better off curbing your spending or using the time you spend doing investment research working a minimum-wage job instead. If you’re going to invest the $500 and really want to get gains, you pretty much need to put it in a stock that you feel is poised to take off.

Here’s an idea: spend the $500 on a Rosetta Stone language course. Learn a language that is useful in your area, or in the area you wish to move to when you start working. Your language skills will open up job opportunities and qualify you for incentive pay that will dwarf your initial investment, and could even qualify you for a better summer job next year that would bring in much better income.

9

I’m pretty sure that either an IRA (maybe a Roth IRA) or 401(k) have to be funded by money that you have earned. I believe they can’t be accessed before 59.5 without penalties. (Might be ~65, but I can’t remember the exact age. Someone that paid more attention to the details of their finance class should be along to straighten out the details.) If you’re going to save for college and insist on having some sort of program, go with a 529. You might not have enough money to mess with one of those though.

The general rule I’ve heard is that you should only put money in the stock market if you can leave it there for a minimum of five years. If you will need it sooner, then you probably want something more liquid, and less risky. If you hold stocks for less than a year, then I think you run into a different tax situation than if you hold them for more than a year (capital gains). As was mentioned, you will also run into brokerage fees.

I’m not a financial planner, and all this stuff is kind of vague, and might be completely wrong. I’m just trying to give you some leads/ideas.

My non-professional (and possibly bad) advice in this situation is to go with a money market account. Interest rates have been going up, and I think the Fed is expected to raise again in February, so you probably don’t want to be locked into a CD. A money market or CD or savings account will at least beat whatever return you might get by sticking it under your mattress.

Good luck, and good thinking to start personal savings and investments.

10

$500 is not much money in investment terms, particularly when your timeframe is one year. A mutual fund is not going to yield much for you in that short a timeframe.

The best advice is: If you can’t afford to lose it, don’t invest it. If you can live with the loss of part or all of it, invest accordingly.

Penny stocks are a bad bet and have the greatest risk of loss. The stock recommended by ccwaterback falls into this category. If you want to limit risk, try a barnstormer like ebay, which is at the top of its game.

You can set up an account with somebody like Scottrade, who only charges $7 per trade (don’t know about age requirements) to buy shares.

11

When I read the threwad title, my first response was “buy a house in southern California” because the value of our house has doubled int he last two years (up into the mid-to-high six digits).

But then I saw that we’re talking about less than $2000!

Investing is like gambling- only use the money you can afford to lose. No stock is a sure thing, no mutual fund is foolproof. Before we bought our first house, I had my IRA in blue chips- IBM, GE, etc. Maybe not as flashy as other stocks, but they provided me a slow, steady increase over the years.

12

Reward is always directly proportional with risk. If you want a high return, you’re going to have to risk a lot to get it.

In your case: Do not invest in penny stocks! (And I’m using the strict definition of any stock that’s sells at less than $5 a share). They are risky as hell, easily manipulated by crooks, and hard to sell in a timely manner to cash in. Any reputable broker will tell you to stay away from them unless you don’t care if you lose all your money. You need to be a very experienced investor with a lot of money coming in from other sources if you want to start. (BTW, it is illegal for a broker to even recommend a penny stock to an investor unless that investor has experience investing in them, and if you ask, she’ll do her best to dissuade you before she takes your money.)

I would suggest a bond fund. Go to http://www.vanguard.com for advice. I’ve invested in their bond funds and it worked out quite well. It wasn’t my money, so it was essential I get both safety and high return, and they filled the bill nicely.

13

With the kind of money and time frame that you’re talking, the only chance of a reasonable return would be to use the money as seed for some enterprise of your own. For example, buying underpriced stuff at tag sales or estate sales and hawking it on EBay. Like all investments, this would be risky, because you’re not guaranteed to not lose money, and it’s also labor intensive, which is pretty much why it might have a decent return.

Note that a lot of mutual funds and investments require that you pay a fee to buy shares, which for this amount of money may be prohibitive.

14

Yeah, what everyone else said. Don’t invest it in the market if you need it back in a year. It’s risky, so you may end up with less than you started with, and even if you do make money it may not be enough to cover the fees.

I would just stick it in a savings account or CD. I also like Finagle’s idea of using it to make money in some sort of private endeavor, but only if you’re willing to put time into it. You’ll want to choose a few categories of items to specialize in, and research what sells well on eBay before you start buying things.

15

They have a hot new toolbar used for online shopping. When you go to a shopping website and choose an item, they automatically go out and compare prices on other websites. The product is free, there’s no registration, it’s not spyware, and they don’t sell your shopping information.

You can download their toolbar: www.activshopper.com

If I was going to take a BIG risk on a penny stock, I would definitely consider this one, SHRN.