Having a nice chunk of money to invest always seems like a wonderful thing, until you start trying to invest it in something promising. With $10,000 to invest, you will find your choices limited. Many mutual funds and unit investment trusts (UIT) require an initial investment of $5,000 or more, and U.S. Treasury bills, notes and bonds also require a $10,000 minimum investment. Many people opt for stocks that are trading at very low prices so they can buy a lot of shares. Unfortunately, penny stocks or any stock that is trading at $5 per share is likely to be a risky investment. You should look for more conservative investments that will grow your money rather than put it at risk.
Determine your foreseeable cash needs. If you may have to use that money to pay bills or buy a big-ticket item, you should keep it in bank certificates of deposit (CDs) or money market funds.
Consider building a long-term investment portfolio. If you can commit this money to the start of a long-term investment portfolio, consider dividend-paying stock and dividend reinvestment plans (DRIP). This is a painless way to accumulate stock by using the DRIP to automatically reinvest your dividends in additional shares of the stock. Utilities and certain blue chip industrial companies pay dividends and generally have DRIPs.
Make use of online services that allow you to invest small amounts of money at intervals over time. Through these, you can slowly build a portfolio a little at a time, and you can even reinvest any dividends. The reason to use a service like this, rather than going through a regular broker, is the transaction cost. Many brokers charge a commission on small purchases that is much higher than the fees charged by the odd-lot services.
Take your time to fully consider the positives and negatives of your investment choices. Determine the realistic future direction of the securities markets and ask questions of investment professionals.
Resist the temptation to trade your $10,000 to make big profits. Professional stock traders have yet to figure out how to do that reliably, and unless you have the information resources and experience of professional traders, your chances of making profits quickly and easily are close to zero.
- Research everything you are considering as an investment. If you are looking at stock, check the quarterly and annual reports, which you can access through the SEC's EDGAR database or OTCmarkets.com's company information database. If you are considering mutual funds, read the prospectus.
- Hot stock tips from email promotions or from well-meaning friends are things to be avoided, unless you thoroughly investigate the truth of the claims and the quality of the underlying company.
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.