Is investing right for you? It is a sad fact of the rules of numbers that you need to have money to make money; at least by investing. Having your investment grow by 20% per year would be a fantastic investment gain, but if you only had $1000, 20% of that would be $200. That needs to be compared with say working a low paying job. If you were making $10 an hour then only 20 hours would get you that $200. (Ignoring payroll taxes and all that stuff.) The point is that with one week of work you would match a year's investment.
You should only be investing with money you do not need right away. If you know you will need your spare money in the next couple years you should be saving that money, not investing. (Mind you, there are smart ways of saving and not so smart ways.)
Ok, so you have a bunch of money you will not need to spend soon. You then might be ready to invest. Just like the first example, different kinds of investment are more appropriate depending on how much you have to invest. Another important factor is how much time you have to monitor your investments and how confident you feel investing.
| Investment Kind | Difficulties | Approximate Minimum Investment | Approximate Range of Returns |
|---|---|---|---|
| Savings Account | Effortless | $1 | 1% to 5% |
| Money Market Fund | Effortless | $1,000 | 2% to 5% |
| Mutual Funds | Minimal Effort | $1,000 | -50% to 50% |
| Stocks | Some Effort/Worry | $2,000 | -90% to 2000% |
| Bonds | Occasional Effort/Worry | $5,000 | -20% to 15% |
| Real Estate | Significant Effort/Worry | $20,000 | -40% to 500% |
| Options | Substantial Effort/Risk | $10,000 | -20000% to 20000% |
| Futures | Substantial Effort/Risk | $10,000 | -20000% to 20000% |
| Hedge Funds | Big Money/Wildly Different | $5,000,000 | -100% to ???? |
Copyright © 2005 Jeffrey Anton