I have about 10,000 I want to dump into the stock market in some way. I plan on adding 2K each month to whatever fund I decide to go with. I won’t really need access to the money once I invest it and plan on keeping it there 5-10 years. Does anyone have a recommendation for the best investment for me? I’m looking for something with higher returns than CDs/online savings so I decided to turn to the stock market? What is the average return per year I am looking at with a mutual fund?
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7 Comments
Let me preface my answer by saying that I have been investing in individual stocks and mutual funds since 1996, and I’ve spent 5 years in the financial services industry working mostly on all types of mutual funds. I have a bachelors degree in Accounting, and I have been researching stocks, bonds, and mutual funds since I was 16 years old. I am now the ripe old age of 28.
Definitely invest in an index fund. Index funds are basically a bushel basket of stocks that track a certain index. They are what is called Passively Managed, ie there are no analysts or managers researching into what stocks they want to hold in the fund. Actively managed funds are funds where analysts and managers do research and pick and choose the stocks they own. These index funds are what I like to call “No Brainers” because they require no thought when you’re investing in them and they also require no thought from the people running them, therefore eliminating a lot of wasted time on both sides of the equation. Plus you have the added bonus of being able to look up their performance since the inception of the index (not the inception of the fund) so you can see what kind of a ride you may be in for.
The average annual return of the market since its inception is somewhere around 9%. If you are keeping your money for 5-10 years in a fund, there is a bit of risk involved, being as your timeframe is somewhat shorter and you will have less years to average your returns out over. So definitely keep in mind that there are NO GUARANTEES when investing in the market! You could end up making 15% a year on your money or you could end up losing money. That is the whole risk vs reward principle at work.
Personally, 85% of my retirement investments (I am 28 years old) are in Index Mutual funds. Some good ones to look at (without me recommending any particular funds) are the S&P 500 Index fund and the Wilshire 5000 index fund, with the Wilshire 5000 being less risky than the S&P 500 due to the number of stocks each owns. You may want to diversify even further by investing in a foreign index fund as well as a small cap (Russell 2000) index fund. If I had to give you numbers right now, I would say 50% S&P 500, 20% Wilshire 5000, 15% foreign and 15% small cap.
Finally, I want to stress that market investing is definitely not RISK FREE. So if you can’t live without that 10k in five to 10 years, you may want to diversify by placing half into a long term CD and half into a good mutual fund. In terms of where you want to look for index funds, I would recommend Vanguard.com and Fidelity.com. Those to me are the leaders in the mutual fund world. It is very easy to find their index funds. Be sure to check all fees and expenses associated with the funds- you should be paying no more than 0.25% expense ratio for a passively managed fund.
Equity mutual fund route is the best way to enter equity market for a beginner. An SIP of Rs 2000 pm is just great to start with. Choose good well diversified equity MF and start the SIP. Your rs 10000/- one time investment should also be routed through SIP.
For 5-10 years investment horizon, one should expect average returns of about 8-10% with bond funds, 12-15% with balanced fund and 15-20% with equity funds.
Happy Investing!
I think your best bet would be to put that into an indexed mutual fund such as the Vanguard 500 which mimics the S&P 500. By doing this you’re able to have a diversified investment and the average return per year for the S&P 500 is 9% or more.
dude this site is not very good for the kind of info you are seeking.
WHY??? cuz nobody can answer that one. the stock market could go any direction this year.
I’ve asked for stock advice on this site before and had these “top contributors” give me wrong advice.
There are two great ways to go once you’ve got about 10k to invest:
Invest in index funds or
Invest in a diversified stock portfolio
The main difference is in how much work you want to do researching your investments.
Index Funds
These are mutual funds that are based on a formula of some kind that gets a diversified investment in a particular chunk of the market. Because they are based on a formula, they are rarely “managed” which means that stock is bought and sold. This is good for the investor, because each time stock is bought and sold the manager gets paid which comes out of your investment, and you trigger tax events which can lose you money. When you look at various mutual funds and take into consideration management fees and tax costs, index funds almost always beat the actively managed funds, especially when the market is down. Additionally, they also at least match the overall market, which means that they are relatively low risk investments if held over time. Some index funds you may have heard of include the S&P 500, the Russell 1000, and the Nasdaq Stock Index. Each has a niche: the S&P involves the biggest 500 corporations, the Russell is about what are called mid-cap stocks and the Nasdaq focuses on technology corporations. However, because they each involve stock in so many companies, the overall fund is diversified.
In addition to investing in index funds, I would choose two different index funds for additional diversification.
Diversified Stock Portfolio
This will take a significant larger amount of research, but the work can pay off. Individual investors who do their homework and buy and hold for 5-10 years can beat the market better than your average day trader. Generally, you start with what’s called an investment mix: the percentage of each kind of stock you will hold. I personally use a mix of 25% large caps, 25% mid caps, and 50% index funds. This has been quite successful during the last 5 years for me. Once you decide on your mix, then you begin researching stocks of these types. To evaluate my stock investments, I use the Warren Buffet method, because I am a buy and hold investor.
Good luck!
Mutual fund is another term for a collective investment such as a unit trust or OEIC. These are ideal first time investments since they offer private investors access to a diverse portfolio of shares for a relatively low investment.
The fund choices in your first portfolio will depend upon many things including your appetite for investment risk.
UK Equity Income funds are a good core holding. These invest in profitable companies with a good record of distributing profits through dividends. The dividends are reinvested and over time they boost the growth in the value of the fund.
Absolute Return funds are another option. These aim to produce positive returns regardless of market conditions. This means they are less volatile (up and down) than other types of fund. These types of fund shouldn’t fall as much as the stock market when it goes down, protecting the investor. But at the same time they won’t rise as quickly when the market is rising.
For greater risk and potentially more reward you could invest in Emerging Market funds. These aim to capitalise on the growth of companies in the developing world.
The greater the exposure you have to Emerging Markets, the more risk you are taking.
Don’t forget to invest in ISA to shelter your gains and income from tax and use a fund supermarket: this will make dealing and managing your investments cheaper and easier.
Disclaimer:
The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances. To find and IFA please go to http://www.unbiased.co.uk
You should be looking long term. 30 to 40 years or more. don’t really include enough information to give a good idea of what you should be doing. How old are you? How much do you make and how much do you spend? When do you want to retire? What are you planning on using the money for in 5 or 10 years?
If I suddenly got $10,000 that I wanted to invest, I would start with an international fund. I don’t trust the U.S. market yet. The trends are not good. The dollar is losing value and the current policies are forcing it to lose more value. This will have the effect of lowering the standard of living for the poorest 70% of the people, but raise the standard of living for the rest of the world. I would split it between a European fund, an emerging market fund, an Asian fund focused on Japan and Korea, and maybe some commercial real estate through a REIT. Be sure to reinvest your dividends. Make sure you have enough cash to pay the bills and have a bit of fun.