There are times when we may come into some money and want to know how to invest it. This may be through inheritance or other means but now we have a sum of money that we don’t want to just spend and we would like it to grow over the years. With this in mind let’s consider how to invest 10,000 dollars. First of all let’s assume that we are going to put the money into common stocks. Let’s also say that we have satisfied the first step of how to start investing in the stock market. We have paid off credit card debt and have several months of savings in the bank, just in case. We also have been fully funding any IRA or 401K at work, especially if the company matches contributions. Now is the time to learn about the basics of how to invest 10,000 dollars or any other sum that we want to see grow for eventual needs.
In deciding how to invest 10,000 dollars let’s look at investment horizon, risk tolerance, growth versus income, and diversification as the first considerations on the way to deciding what is a good investment for our first stock. How we envision our investments will help us focus on the stocks that fit our needs. If we are looking to save money for retirement we may choose different investments than if we are saving for a down payment for a house and hope to have built up a substantial amount of capital in, lets’ say, five years. Our risk tolerance should be built upon our ability to absorb the loss of our investments in their entirety. Someone close to retirement may want to look at dividend stocks more closely than growth stocks and a younger investor will certainly want to cash in on the exponential growth of a strong growing company. Diversification is always important as it lets us benefit from growth in different market sectors and commonly cushions losses in one stock/sector with gains in another. With these principles in mind it is time to decide how to invest 10,000 dollars and in which stocks.
With diversification in mind for how to invest 10,000 dollars we may wish to look at a mixture of very safe investments and investments with a bit more risk but the potential for strong growth. Investing in companies with cash is always a means of obtaining a margin of safety in a stock portfolio. A company like Microsoft has gone through its incredible growth phase and is sort of hung up the high twenties. However, it pays about a 2.5% dividend and typically has billions of dollars in cash at its disposal. This cash reserve allows a company to weather economic storms without going into bankruptcy and allows it to take advantage of potentially profitable takeover opportunities. With diversification in mind we might look for a startup stock as our next pick. We will want something with a promising product line and management with the experience to bring the idea that is the new company to a profitable future. We will look at financials, management, products, and just what the stock is selling for. Ideally we want a low price to earnings ratio because we don’t want to buy a stock that has already run up in price with nowhere to go but down or sideways. Our second pick needs to be in a different market sector than the first and the third in a third sector. We should, at least initially, limit ourselves to five stocks as we will want to review financials and check stocks prices at least weekly. The most important part of how to invest 10,000 dollars, after buying stocks, is to pay attention to those stocks and rotate the portfolio based upon what the best options are.
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