The Reality Of Investment Risk
When it comes to risk, heres a reality check: All investments carry some degree of risk. Stocks, bonds, mutual funds and exchange-traded funds can lose value, even all their value, if market conditions sour. Even conservative, insured investments, such as certificates of deposit issued by a bank or credit union, come with inflation risk. They may not earn enough over time to keep pace with the increasing cost of living.
Where To Invest In Mutual Funds And Etfs
For investing in mutual funds and ETFs, one of the best platforms to consider is . E*TRADE is whats known as a robo-advisor, which uses algorithms to help you maximize your results while investing.
E*TRADE gives you access to more than 9,000 mutual funds and more than 4,400 no-load, no-transaction-fee mutual funds. A fund screener helps you find the best mutual funds to add to your portfolio.
For ETFs, youll get commission-free access to every ETF sold. You can use the ETF screener to find the best funds to match your needs.
Invest In Individual Stocks
You can use a brokerage account to invest in individual stocks as well as in index funds. Stocks represent ownership in a business and can be a great means of building wealth for the long term. As they tend to fluctuate greatly in value, it’s wise to diversify your portfolio of stocks by owning several at a time.
Even with $10,000, it’s possible to own a well-balanced portfolio of individual stocks. Many brokerage firms, such as Fidelity, Robinhood, and Square‘s Cash App, offer the ability to purchase fractional shares. If a single stock is priced so high it eats up a large percentage of your $10,000 , it’s possible to purchase half a share, a quarter, or even less. This can be a great way to invest in multiple businesses ranging from large and stable companies to small, up-and-coming future leaders.
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Limits Of Expected Return
Calculating the expected return of an asset may take some guesswork. This is because the expected return is calculated using historical data, and because the market fluctuates, it only paints a possible picture, rather than a precise picture. Investors should use this formula while keeping in mind that it may not paint the whole picture.
Example Of How To Calculate Portfolio Return
The best way to learn how to calculate portfolio return is by looking at an example. Johnnys portfolio has three asset types: real estate, stocks, and bonds. The total investment amount for his portfolio is $750,000. In Johnnys portfolio, the annual returns are: real estate 10%, stocks 8%, and bonds 2%.
Our next step is to compare each asset types initial investment to the overall investment amount of the portfolio. For real estate, Johnny invested $425,000. If we divide 425,000 by 750,000 we get .56. Next are stocks, which have an initial investment amount of $275,000. The weight of this asset type can be solved by . This gives us .36. Finally, Johnny invested $50,000 in bonds, which has a weight of about .06 in his portfolio.
Now that we have the return and weight of each investment, we need to multiply these numbers. For real estate, we will multiply .56 by 10% to get 5.6%. Following this formula for stocks and bonds, we get 2.88% and .12%, respectively. If you add each of these percentages together, the overall portfolio return is 8.6%.
For this example, we knew the exact return amounts for each investment type but in reality, you may not always have these numbers before you start. Keep reading to learn more about how to calculate returns for all of your investments.
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If Youre A Beginner Stick With Mutual Funds And Exchange
If you like the idea of choosing your own investments, but arent entirely comfortable with building your own portfolio of individual stocks and bonds, you can always choose to use either mutual funds or ETFs. Each is a portfolio of professionally selected and managed securities. All you need to do is choose the funds you will invest in, and how much youll invest in each.
Though mutual funds and ETFs are often mentioned interchangeably, theyre actually quite different investment vehicles.
How You Invest $10000 Will Depend On A Number Of Factors Learn More About The Best Ways To Increase The Value Of Your Initial $10000 Investment
Investing can be a great way to build wealth and achieve your financial goals.
But how should you invest your money? Let’s say you have $10,000 available to you, whether you’re a beginner at investing or have already started a portfolio. To invest this money, you first need to decide on your investment goals, your timeline for using this money, and your strategy for reacting to volatility. Here are a few questions to guide your decisions:
- What do you plan to do with this money? Are you saving for a particular end goal or just to build your wealth?
- How soon do you need this money and how much of it will you need? Will the whole account balance be needed all at once or in regular withdrawals ?
- How will you react to sudden fluctuations in portfolio value along the way, both down and up? Will you invest more, stay the course, or be tempted to change strategies?
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Stick It In Us Treasuries
If youre looking for a super-safe investment that still pays a respectable rate of return, I would suggest taking a look at the incredibly-unsexy U.S. Treasuries. Yeah, theyre very boring and kind of a pain to buy, but they provide a solid rate of return if youre looking for a safe place to store your cash if youre willing to keep your money in an investment for a while .
U.S. Treasuries are government debt, and you can buy into one of four different types: Treasury Bills, Treasury Notes, Treasury Bonds, or TIPS. Ill explain each of these below.
- Treasury bills tend to be your shortest-term investment. Most T-Bills have maturities from one to 12 months, and interest is paid at maturity.
- Treasury Notes pay interest every 6 months but have maturities of either two, three, five, seven, or 10 years.
- Treasury Bonds also pay interest every six months but have maturities of 20 or 30 years .
- TIPS also pay interest every 6 months and have maturities of five, 10, and 30 years. Whats cool about TIPS is that the principal balance gets adjusted by the CPI , which means the value of your security will keep up with inflation.
If you want to use your $10k investment on treasuries, you can see current rates and buy U.S. Treasuries through Treasury Direct.
If You Have A 401 Get Your Match
A guaranteed investment return is as rare as free money, and a 401 match gives you both: When you put dollars into the account, your employer puts dollars in, too. How many dollars depends on your plans matching arrangement, but 50% to 100% of your contributions up to a limit of 3% to 6% of your salary is a pretty common range.
This $10,000 windfall may give your budget the room it needs to finally start meeting that match, if youre not already. The hitch: You typically cant just make a lump-sum deposit to a 401, so you have to get a little creative if you want to get this cash into your plan and capture matching dollars while you do it. Put the $10,000 into a savings account, then set your 401 contribution to the level your employer matches. When that contribution is swiped out of your paycheck, repay yourself from the money in savings.
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What Is Portfolio Return
Portfolio return is the gain or loss from an investment portfolio, typically made up of multiple asset types. Investors will choose assets based on their financial goals and risk tolerance and attempt to maximize their overall returns. The purpose of looking at portfolio return is to ensure a balanced, high-yielding investment portfolio. Sample assets include stocks, bonds, ETFs, real estate, and more.
Specific benchmarks are used when looking at portfolio return, depending on the included assets. Most investors will calculate their portfolio returns annually to ensure they are meeting their financial goals. When analyzing portfolio returns, a common strategy is to choose investment types that move in opposite directions, such as stocks and bonds. This is one way to use portfolio return to balance your investments and reduce overall risk. There are numerous other ways to use this calculation to your benefit.
Investing With $10k Or Less
Spreading your money among different types of investments is generally accepted as a good way to reduce risk and build a strong portfolio. But what should you do when starting out with a small amount?
Before beginning, it’s important to recognise that there is always a risk that the shares you buy wont increase in value or provide a return through dividends. Past performance is also no guarantee of future performance. For many people that’s why the concept of spreading risk by having more than one investment is appealing.
So what can you do if you don’t feel like you have enough for many different assets at the outset?
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Resell Products On Amazon Fba
If you have a talent for finding bargains, but have never had the inclination to sell some of those bargains for profit, Amazon FBA is probably the most hassle-free way to do it.
FBA stands for , and thats exactly what they offer. You deliver the items you want to sell to Amazon, and then market them on the site. Once they have been sold in the usual way that sales take place on Amazon the company will handle the shipping for you. Its one of the easiest ways to run an online business.
What Types Of Mutual Funds Are There
Most mutual funds fall into one of four main categories money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards.
- Money market funds have relatively low risks. By law, they can invest only in certain high-quality, short-term investments issued by U.S. corporations, and federal, state and local governments.
- Bond funds have higher risks than money market funds because they typically aim to produce higher returns. Because there are many different types of bonds, the risks and rewards of bond funds can vary dramatically.
- Stock funds invest in corporate stocks. Not all stock funds are the same. Some examples are:
- Growth funds focus on stocks that may not pay a regular dividend but have potential for above-average financial gains.
- Income funds invest in stocks that pay regular dividends.
- Index funds track a particular market index such as the Standard & Poors 500 Index.
- Sector funds specialize in a particular industry segment.
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Invest In A High Yielding Savings Account Or Cds
If you want to be completely safe, you can invest the money in high-yielding CDs or a high-interest savings account. These days the best rates are coming from online banks.
For example, CIT Bank offers its Savings Builder Account. You can open an account with a minimum of $100, and secure an APY of up to 0.95%.
Online banks have all of the advantages of traditional banks, including a debit card and ATM access.
Your deposits are covered by FDIC insurance up to $250,000. And you have all of the benefits of dealing with a reputable bank because thats exactly what these online banks are.
Theres Also Real Estate Investment Trusts
If the idea of investing in real estate crowdfunding platforms scares you, and you dont have the capital or experience to buy an individual investment property, an excellent alternative are real estate investment trusts, or REITs.
A REIT is something of a mutual fund that invests in a portfolio of real estate properties. Theyre typically commercial properties, including retail space, office buildings, large apartment complexes, hotels, hospitals, warehouse space and other property types.
Youll invest a flat amount of money in a REIT , similar to purchasing shares of stock. You dont own any of the properties in the trust, but rather an interest in the REIT itself.
One of the big advantages with REITs is that they pay generous dividends. In fact, they are required by law to pay out 90% or more of their net income in dividends to their shareholders. The returns on REITs can be impressive, averaging 11.8% per year.
Were not going to make any specific recommendations on REITs, because we have not reviewed any of the hundreds that are available, nor do we claim any expertise in this area of investing. But there are plenty of online sources where you can find well-performing REITs that will be worth investing in.
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Make Improvements To Your Own Home
With $10,000, you can make an investment in your home that could have a return of as much as 98% . Yes, thats technically a loss when you sell the home, but it may increase the overall value of your home, and you can expand your capacity to get a home equity line if you need it.
Its nearly impossible to make a home improvement that will return more for you than the cost of the investment itself, but The Street gets pretty close. In their article, they layout six home improvements, backed by data, that can get you a pretty solid return on investment . Here are their picks, with the estimated ROI:
How To Invest 10000 Wisely
Invest according to your attitude to risk. To work this out you need to consider your capacity for loss and your risk appetite.
- Capacity for loss = how much you can afford to lose
- Risk appetite = how you feel about losing money
You should ask yourself these questions first:
If you answered yes to the above, it sounds like you would be comfortable investing. Find out more in our beginners guide to investing.
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How Do You Calculate Portfolio Return In Excel
Youll quickly learn that Excel or Google Sheets can be your best friend when running complex real estate calculations. You can even set up a formula template and save it so that you can run calculations again and again without having to reinvent the wheel. The key to using Excel is to set up data labels clearly so that you know exactly where to input your variables each time you run your calculations.
To get started, lets set up your variable labels in the top row. Starting in cell A1, enter the following labels: Portfolio Value, Name, Investment Value, Investment Return, Investment Weight, Total Expected Return. The last cell in which you entered Total Expected Return should be F1.
Next, youll enter your variables in the second row, starting in A2. Here, add in the values that correspond with the respective label in the cell above. So for example, in cell A2, you would enter your portfolios total current value. In cell B2 and below, enter the names of each investment in your portfolio. In cell C2 and below, enter the current value of each individual investment in your portfolio. In cell D2 and below, enter your expected investment return rates for each investment.
Finally, its time to calculate your total expected return. In cell F2, under the label Total Expected Return, enter the formula =. Be sure to include each investment you have. The rendered number should be your total portfolio return.
Watch Out What To Consider Before Investing
Before that money burns a hole in your pocket, consider your goals and timeframe. Are you going to need to use it anytime soon? If so, avoid putting it somewhere that’s too risky, especially if you might need it in the short-term.
Read on to learn what you should consider.
- Start with Your GoalsWhat do you dream of doing with your $10,000? Will it fund a luxurious vacation, help you retire, or buy a house? First, categorize your goals as being long-term or short-term .
Determine the Time FrameDivide your goals into categories:
- Less than 1 year = short-term goals
- 1-5 years = intermediate goals
- Greater than 5 years = long-term goals
These timelines dictate the level of risk you may want to take. Here’s a basic rule: The shorter the timeframe, the less risk you can take. The longer the timeframe, the more risk you may be able to handle.
Riskier investments tend to have more ups and downs. Do you have time to ride them out – and perhaps get a greater return? It’s a key question for every investment you make. Apps, such as Personal Capital, can help you look at all of your investments at once to see how they’re developing. Read more in our full review of Personal Capital.
Robert R. Johnson, professor of finance at Heider College of Business, Creighton University, and co-author of Strategic Value Investing and Investment Banking for Dummies
When to Invest
Fees you should watch out for include:
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