# How to Invest $40,000 ## Main Question or Discussion Point How would you invest this much with pretty much minimal risk but more interest then normal? ## Answers and Replies Related General Discussion News on Phys.org brewnog Science Advisor Gold Member Some considerations: What term do you want to invest over? Are you prepared for your funds to be inaccessible for the duration of the term? How much risk are you willing to accept? How much return are you hoping for? Have you any ethical concerns over where your money is invested? Do you want the investment managed for you, or would you do it yourself? D H Staff Emeritus Science Advisor I can't resist: May I suggest the D H Wealth Accumulation Fund? There is very little risk in this fund (to D H, that is). Joking aside, the questions brewnog raised are very good ones. You need to find a balance between risk, accessibility, and return, and that is inherently a personal issue. One thing is certain: You can't have all three (low risk, immediate accessibility, and high return). Forty thousand dollars is a good size chunk of cash. I suggest you do some homework first, and then think seriously about talking to a financial advisor. In fact, multiple financial advisors. You won't know if some advisor is trying to sell his/her own Wealth Accumulation Fund unless you talk to more than one. Astronuc Staff Emeritus Science Advisor Do you want the investment managed for you, or would you do it yourself? Another way of putting this is - how much effort does one wish to exert? In other words, does one want to hire another, e.g. a professional money manager or investment manager, which will incur some cost, or does one want to invest oneself, whereby one could do online trading of equities or other financial instruments. One could put the money in a guaranteed fixed income account and draw a few percent interest, or one could invest in equities (e.g. stocks) which have potentially high returns, but could also decline in value. Then there are more complex investments with high returns, but greater risk. One could diversify the investment portfolio and risk some of the money for higher returns. Some fair suggestions here. I think there was an advice by Buffett's teacher which was that if you aren't an expert and want to invest for the longer term then just buy the stock index because on average stocks return higher then most other forms of investment. What do people think of that? It does seem to make sense as companies are ultimately responsible for large increases in living standards and growth of economies. Last edited: lisab Staff Emeritus Science Advisor Gold Member Some fair suggestions here. I think there was an advice by Buffett's teacher which was that if you aren't an expert and want to invest for the longer term then just buy the stock index because on average stocks return higher then most other forms of investment. What do people think of that? It does seem to make sense as companies are ultimately responsible for large increases in living standards and growth of economies. I think that investing in an index fund is not a bad idea, for people (like me) who don't want to spend a lot of time researching individual stocks or funds. When you look at how a fund is rated, it's usually compared to an index fund...so why not just choose to put your money in the index itself? It would also make sense that an index fund's fees would be lower, since the fund wouldn't need constant upkeep and adjustments. That's just speculation on my part, though. My 401(k) has an option that allows you to put your money into an account that automatically adjusts risk and market exposure as your retirement date nears. Some fair suggestions here. I think there was an advice by Buffett's teacher which was that if you aren't an expert and want to invest for the longer term then just buy the stock index because on average stocks return higher then most other forms of investment. What do people think of that? It does seem to make sense as companies are ultimately responsible for large increases in living standards and growth of economies. Any stocks on average give ~1% return atm if I'm not too mistaken, economies are growing so this will be so as long as you're not in a recession. That said I'm only stating the obvious because I want to book mark this thread. But also if I wanted to make an investment with virtually no risk I'd go for a savings plan/personal equity plan. With risk I'd put a$40,000 dollars on number 9 at Ascot. But that's a little too heavy for most investors. In between is of course a fund. And then you are relying on the economy.

I wish I'd of had the money to invest when I did, because I pegged a lot of growth areas, and seem to have a knack for it, I tell friends to invest in x, and it works out. But atm I never seem to have the funds to invest, nor have for a while. Still it's a work in progress, would like to play the system if I could, just to see where it lead me. Not because I want to make a heap, that would be nice, but just to see if I could.

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D H
Staff Emeritus
Well, dang. I was really looking forward to a new boat. That 40K in the D H Wealth Accumulation Fund would have helped a lot to that end.

If you truly are looking to invest for the long term, forget about low risk. One of the biggest risks is letting your funds wallow in a "safe" investment. Buffet's teacher's advice was pretty good. The stock market, on average, outpaces inflation by a very healthy margin. Your very safe bank account, on average, does not even keep pace with inflation.

An alternative to buying stock market indices is to buy shares in a stock fund. I also suggest you also look at Roth IRAs. You have about 18 days left to set up a Roth IRA for 2007.

turbo
Gold Member
If you want to have your money available (liquidity) and still get a decent interest rate, you may want to look into money-market accounts. Many are FDIC insured (up to $100K) and yield returns of perhaps 5% or so. Many allow you to write checks (drafts) against your account for free, though you may be limited to a certain number of such transactions/month. If you call the customer service departments of some big investment firms like the Principal, etc, you'll get free advice (though skewed toward their offerings) about investing, and they will ask you questions about time-frames, risk-tolerance, etc that can help sharpen your perceptions about investing. I would wait until we have our new president, and I would study his or hers views, plans, etc, see what direction they have planned for energy, etc. When Bush was two years into his first term, I wrote a letter as part of a class assignment to the white house asking about how we will plan to solve the energy problem, reduce foreign dependancy, and reduce pollution. They wrote back a detailed letter outlining their plan to make Nuclear power the future. I started thinking and I looked up information on the nuclear power industry, and I found that most facilities in the us, and in much of europe are ran by two companies, one based in london, and the other was Excelon, or EXC. I wanted to invest money in EXC, but I didn't have that much money at the time, and instead I just kept notice of the gain in their stock. Since I started watching, the company had a steady gain. There were practically no falls at all, just steady gain for the five years I watched. The price went from about 20 per share to about 80 or 90 a share from the period I watched. Now it is so high, that I feel like then was the time to do it, and it might start to fall if new players get into the white house. chroot Staff Emeritus Science Advisor Gold Member Trade it in for euros.... Okay, I'm being slightly facetious. Index funds are good, but the market's tumbling right now, so it's not quite a good time to buy in -- but perhaps things will be different later this year. The truth is, your "minimal risk" criterion pretty much kills any kind of investment except bonds, CDs, etc. You can get 5% APR on checking accounts if you shop around. (Hint: online banks and credit unions typically offer higher returns than traditional banks.) - Warren Right now cash is king. lisab Staff Emeritus Science Advisor Gold Member Trade it in for euros.... Okay, I'm being slightly facetious. Index funds are good, but the market's tumbling right now, so it's not quite a good time to buy in -- but perhaps things will be different later this year. - Warren But if you're in for the long run, it's best to buy when the market's down. It's like a sale. chroot Staff Emeritus Science Advisor Gold Member But if you're in for the long run, it's best to buy when the market's down. It's like a sale. It's useless to characterize a market as "up" or "down." Down? Compared to what? The market is currently headed downwards. You don't want to buy in while the market's still falling. - Warren Moonbear Staff Emeritus Science Advisor Gold Member The best advice I can give is that if you are lacking knowledge in investing to the point where you'd ask a bunch of random strangers on an internet forum how to invest$40,000, you are best off finding a good financial advisor to help you.

lisab
Staff Emeritus
Gold Member
It's useless to characterize a market as "up" or "down." Down? Compared to what? The market is currently headed downwards. You don't want to buy in while the market's still falling.

- Warren
Yes, the markets are going down and probably have not bottomed out yet. But I'm not going to use the money for 25, 30, maybe 40 years. This recession will be a faded memory, a blip, by then (I hope).

From my long-term perspective, the most important thing is to just keep socking it away, month after month. So far I've done really well. Compared to coworkers who seem to always think of a reason for not putting money in their 401(k), I'm miles ahead of them.

chroot
Staff Emeritus
Gold Member
Yes, the markets are going down and probably have not bottomed out yet. But I'm not going to use the money for 25, 30, maybe 40 years. This recession will be a faded memory, a blip, by then (I hope).
This is a fallacy, due to the nature of compounding interest. If you lose 10% of your capital immediately because you chose a poor time to buy into the market, you will miss out on an enormous amount of money that that 10% would have generated after 40 years of interest. Investments typically grow exponentially, and are therefore very sensitive to initial conditions. A long time horizon does not mean you can simply buy in whenever you want and get the same result -- far from it, in fact. Long time horizons just amplify the quality of your decisions.

- Warren

chroot
Staff Emeritus
To make the concept concrete: Imagine investing $10,000 today. If you bought in very close to the bottom, and the market delivers 10% APR for the next 40 years, you'd have something like:$10 000 * (1.10^40) = $452,592 If you lost 10% in the first year, but then made 10% every year for the next thirty-nine years, you'd have something like:$9,000 * (1.10^39) = \$370,303.