Posts Tagged ‘10000’

The markets are down, making mutual funds all that much more important for risk averse investors. That is not to say stocks do not have their place, but the reason I love mutual funds so much is because they offer so much diversification (some would argue over-diversification) that risk becomes somewhat limited. So what does that mean for a mutual fund investor? It means greater participation in specialty funds like gold funds, small cap funds, BRIC funds, and so on. What this ultimately means for your every day investor is:

• yes, the markets will tank and bring down their investments. But when core investments drop, other investments hold down the fort. Which investments will it be? Bond funds? High Yield Investments? Small Cap funds? If I or anyone else could predict such things ahead of time, we would never both with those core holdings in the first place, would we? By being properly invested, the risk of being wrong is reduced or eliminated… something’s gotta win.
• opportunities to rebalance. Maintaining a proper asset mix is essential to long-term success (compared to chasing the winners every time a winner is identified). This means that as markets increase or decrease, the asset mix will shift. This calls for rebalancing, trimming those assets that have done well and dumping money into smart mutual funds that have not fared so well. This achieves two things: it reduces over-exposure and it allows to buy assets when they are considered “lower.”
• buy more when markets suck, buy less when they are heroic. This is the basis of dollar cost averaging, something we should probably stress more often at this site. Still, when markets tank, it reminds us of the importance of never throwing all of our money on the table at once. It reminds us to ease into a position(s) gradually.

Now what does this all mean to how I would invest 10,000? It means that if I was given $10,000 today and told that I had to invest it (instead of spending it on a bunch of toys for the summer), I would:

1. Determine my asset allocation model. You can do that right on this site if you want, or you can ask your advisor to help you figure it out for you. Mine will show: 60% Equities and 40% Income (this is after I decided to ignore the cash recommendation and invest instead in fixed income). Seems conservative unless I am a balanced investor, yes. But let’s take a closer look…
2. Research the following mutual funds; a good Balanced Fund like the PIMCO All Asset fund, which is a medium risk, high return 4-star rated fund. I would throw $7,500 at this fund because it is not only well managed, but the underlying assets are those that I actually believe in. And then I would invest in the Ivy Small Cap fund (a fund I have been laughed at for picking and sticking to, but one that maintains all of the fundamentals that I personally believe in and trust). This fund will allow me to invest $1,500 of the remaining $2,500, leaving me with $1,000 which I would throw at the Franklin MicroCap Value fund, another 4-star fund but one that has virtually no risk associated with it and a track record that would make old pros blush.
3. Review, review, review. Yes, three times.  Per month, that is. Because I think these assets are placed so well, the portfolio would fall out of balance fairly quickly.

If permitted, I would add a 4th point: split the $10,000 into ten $1,000 contributions. This would not be possible in the case of the funds I chose here, but if I had, say, $40,000 to invest, I would invest 10K now, the remaining $30K over the next 2 years. And all of it would be in mutual funds; small cap funds and a balanced fund, maintaining as close to a 60/40 split as I possible can given that balanced funds will not report in real-time what their holdings are.

One of the starting points to investing comes with the savings of ten thousand dollars. This seems to be a magical number for some reason, at which point people look for the best and most effective ways to invest 10000. Contrary to what most people would like to hear, when you invest 10000 you are not able to live a decent lifestyle off of the returns. In fact, even with an index fund that saw the S&P 500 climb more than 40% in 2009, that phenomenal return translates to just $4,000 in returns, clearly less than $350 per month.

When people want to invest 10000, the best advice a professional planner can give them is to invest for the long-term and “forget about it.” This makes the most sense for most investors as it will allow them to focus on saving their next 10000. More importantly, if the investor trusts the advisor and the advisor is even half-ways competent, he or she will recommend better ways to save that next 10000. Ultimately, people who want to invest 10000 will not receive advice on how to invest the original 10000 but they will receive advice on how to create even greater wealth through an appropriate savings and investment program that looks at building a proper asset allocation model as well as a rudimentary financial plan that takes taxation and some estate planning issues into account as well.

A common question facing many advisors today is how to invest 10000 given the market conditions. Some people will ask this question and revel in the entertainment value of the advisor’s response because, unfortunately, there is no generic response to this question (there should not be anyway). The reason for the many different responses is that financial advice cannot be given on a generic level… ever.

Without fully understanding the investor’s goals and objectives, the advisor really should not be giving any advice at all. For instance, investors with low to medium risk tolerance but a small appetite for growth may be inclined to invest in high yield investments. An investor with greater risk tolerance and a better appetite for risk would probably be best served in an equity fund with great long-term performance, low expenses, and greater opportunity for sustained long-term growth.

As evidenced below, the question about how to invest 10000 cannot be generically answered, so the responses out of different advisors can certainly be comical as they seemingly skirt the question and provide something of a well-rehearsed, industry compliant regurgitation of questions to the person asking what is seemingly an easy, straight-forward question.

However, for those who are serious about where to invest this magic number, websites such as www.MutualFundSite.org is a great starting point because it will point you to the right spots. First is your financial advisor/planner, and if you do not have one then at least this site will provide you with the basics. Second is what mutual funds (and other investments) are all about, particularly as long-term investment (wealth building) vehicles. Third is that after you spend a bit of time on our site, you will understand the basics of investment management so that you can not only stay on top of your own financial advisor or planner, but on top of your own investment portfolio as well. (A well-respected financial planner in my area has a slogan: “Financial planning is not a spectator sport.” This catchy slogan has not only helped him attract a great deal of local business, but it is also so very true. His clients know, up-front, that they will need to invest some time and effort in understanding their investments, which allows him to sleep better at night because he knows that these folks are not investing in “him,” they are investing in the plan he helped them develop).