Where to Invest if you have $5000
As the stock market continues to reach new highs, it is creating a lot of excitement for new investors. Most new investors enter the market because they don’t want to “miss the bus” while another group of investors are waiting on the sidelines, hoping that the market will go down so that they can find a good entry point.
While each investor strategy is valid, the fact remains that we cannot time the market. No one can. To anyone who says they can, my suggestion is, take your money and run! When I was just getting into investing in stocks, it was the dot com era. Everything that was getting listed was going up. I was having anxiety that if I didn’t invest immediately, then I would miss the opportunity to make a lot of money. This was almost 20 years ago when I decided to invest $1500 (a lot of money for me at that time) and as Murphy’s Law states that anything that can go wrong, will. Well, the market crashed and my $1500 worth of investment was now worth $300.
Now I am not suggesting that the market will crash or that it will go down. Like I mentioned earlier, no one can time the market. My lesson from that $1500 investment 20 years ago was how to build a balanced portfolio regardless to withstand whether the market goes up or down.
So let’s say that you have an emergency fund established, which you can access immediately in case of an emergency, like sickness or major repair, etc. And after that you have $5000 that you want to invest in the market. What should you do and where should you invest?
Here is my suggestion on how to invest in the market.
Fixed Income Investments — 20%
Current CD rates are less than 1% but there are still a lot of funds available that carry a very low expense ratio and give an average of 4%-7% a year return. For example American Century High-Yield Muni Fund (ABHYX) has a low expense ratio of .60% and has an average 5-year annual return of 4.66%. There are several fixed income funds available in the market giving better returns than a CD.
Stocks — 35%
Investing in stocks requires research. If you are new to investing in stocks, then start your research with only 2 or 3 companies that you personally love and enjoy its product or service. For example, if there is a product in your life that you absolutely enjoy, then see if that company is traded in the stock exchange. Start your research and investments with what you know.
Index Funds — 25%
Index Funds are a great way to diversify your risk in the market. There are literally hundreds of indexes available in the market. My suggestion is to look at some of the most common indexes like the S&P 500, Dow Jones 30, Russell 2000 and Nasdaq Composite. Once you decide which index you want to invest in you can find a fund linked to that index that is offered by your brokerage account.
Index funds provide a great way to invest with minimum risk and also saves time from researching individual stocks.
Closed End Funds — 20%
Closed End Funds are something that I learned a few years ago. These are funds that have a fixed amount of shares available. Once the shares are issued during the initiation of the fund then no new shares can be issued and no new capital can be raised into that fund.
These funds are actively managed by managers and the shares are traded just like stocks in the market. These funds provide a higher return and also provide a good opportunity to buy when the fund is at a discount to its net asset value (NAV).
You can read more about Closed-End Funds here: https://www.nerdwallet.com/article/investing/what-is-a-closed-end-fund
I hope this provides you with a good starting point in your investing research. Happy Researching and Happy Investing
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions
