Why invest 10,000 dollars? Why not spend it? Why not update the house, take the family on a nice vacation, pay off some debt? These are all great investment management question, even though few of them deal with investments, much less mutual funds or bond funds in particular. In reality, the best way to invest 10,000 dollars will depend largely on your risk appetite.

Low Rates?

Then you are looking at high yield investments, bond funds. High yield bond funds, specifically. Why? Because over the next decade, your investment will perform fairly well. Right now, spreads between corporate bonds and government bonds is rather wide. That means that corporations are paying a lot more to borrow on the market compared to governments. Now, it will always be this way (or it should), but the disparity between the two became unnaturally wide during the credit crisis. This makes sense because lenders wanted to be compensated extremely well for the perceived risks involved with lending to companies.

Of course, those perceived risks slowly began to disappear as the investment world realized that, lo and behold, not all companies were going to fall off the face of the earth. Additionally, inflation is beginning to creep into the system. What this means for bond funds is that the money corporations pay will start to come down (the risks just aren’t there like they used to be) and governments will start to pay more (inflation pressures push for higher yields and this should coincide with an improving economy). Therefore the spreads will narrow.

As corporate bond rates drop, those bond prices will rise. The holders of those bonds will happily take those gains while simultaneously enjoying the income generated from those previously negotiated higher rates.

High Risk?

Higher risk appetites demand higher risk investments. This does not mean getting crazy with highly speculative investments. For the hands-off, sophisticated investors this probably means large- or giant-cap equity funds. Preferably dividend-paying stock will be held within these portfolios, further reducing some of the risks associated with equity funds. Why equities?

Simple. A strong fund with a history of performance, a history of high risk-adjusted rates of return.

Can this be achieved? Yes, and it is probably easier achieved with equity funds than it is with high yield bond funds. After all, even companies that are virtually guaranteed to be around tomorrow and for years to follow are still considered under-valued thanks to the fears of those investing in the markets. Why? Because there are so many mid and small-cap investments that remain poised for failure.

But consider the big oil companies. Industrial materials companies that are directly benefiting from the government stimulus? Financial services companies who have all but promised to repay government loans as of well, yesterday? Are these the types of companies that will further cripple the economy? For the time being, no. (We will have to wait a good five to seven years to know for sure).

So, Where Can I invest 10,000 And Walk Away With 20,000?

We think that if you have three to five years, either high yield bond funds or large-/giant-cap equity funds are the place to be (preferably value-based equity funds) with minimal risk. Will you double your investment in this short period of time? Well, it has been proven by many of these funds that it is not only possible and not only likely, but a matter of history. Just make sure that a 100% is sufficient for your needs. See investment management is not only about knowing when to get in, but when to get out. Whether you want 100% returns or 50%, stick to your objective and get out, regardless of what the markets promise in the months to come. This is particularly important for that first investment, when you are looking at how to invest 10,000 dollars the smartest, most efficient way possible.