If you have the problem of not knowing where to invest $10,000, you have a problem that many people would love to have. But not knowing where to invest is not the true problem; it is a symptom of the problem of not knowing enough about investments and the optimal investment vehicles. While some people might understand the basics of mutual funds (they are pools of funds where hundreds, thousands, or even hundreds of thousand of investors write checks to these fund companies, who then take all of this collective money and purchase securities on the open markets and then return the gains, proportionately, to the people who invested in the funds), fewer yet understand the different asset classes — Equity, Income, and Cash/Cash Equivalents — and even fewer understand how the different funds operate in terms of investment management strategies.

Not knowing where to invest $10,000 is a great problem to have… but that is not the problem. The problem is investment knowledge.

The easiest way to understand investment management is by understanding how the following chart below works. Ultimately, there are three areas; red, blue, and yellow.

Asset Allocation Model

This chart illustrates the basis of asset allocation. Each color represents an asset class; equities, income and cash. Understanding your risk tolerance, investment objectives and time horizon will allow you to allocate part of your $10,000 to specific areas at specific, pre-determined ratios.

For example, if you have a medium risk tolerance with an investment objective of income and some growth, with a time horizon of five years, then you might consider an asset allocation model as follows: 25% Equities, 65% Fixed Income, and 10% Cash. In this chart, the Equities would be the Blue portion, Fixed Income would be Red, and Cash would be yellow.

The fundamentals of a strategic investment management suggest that all you need to do now is ensure that these assets stay within their limits (65% Income, 25% Equities, and 10% Cash) through period rebalancing.

So, where does that leave you when it comes time to invest $10,000? Depending on your level of investment knowledge and how well you know your stuff or how much you trust your financial advisor, then you could easily develop your own plan using a well-defined asset allocation model.

If you would rather not have much involvement with your investments, then you are probably best served by a Balanced Fund. This is a common choice for people who need a place to invest $10,000 and they need a little more time to educate themselves on the different investment options they have.

Why Balanced Funds? These types of mutual funds offer active investment management from top investment managers at a reasonable price. Most of these managers would not normally deal with people with less than $1,000,000 in investments… yet here you can access them with 1/100 of that amount.

Balanced Mutual Funds offer active management from investment industry leaders.

So where does that leave the average invest with his or her $10,000? Starting with a Balanced Fund that aligns with his or her investment objectives, risk tolerance and time horizon is ideal. While the fund operates on its own, the investor will be able to learn more about other investment options, if the desire is there. Of course, many investors will remain invested in Balanced Funds. In fact, many private bankers will use their institution’s balanced fund portfolio managers to manage their high-net worth clients’ funds. The only difference is that private bankers will deal with people who have extremely high net worth; balanced mutual funds will help people invest $10,000.

Ultimately, the question about where to invest $10,000 can be answered introspectively. If you have high investment knowledge, then mutual funds are probably not your ideal investment. If, however, you have moderate to no investment knowledge (like most people), then mutual funds work well. If you feel you need to learn more before making a permanent investment decision, then balanced mutual funds are the best place to invest $10,000 after all.

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