If you received a $5,000 bonus, what would you do with it?
For many, such a windfall would be quickly squandered on shoes, electronics, or dinners out. For other people, the extra cash would just be a method to put out some financial fires. These folks would probably require the money to have an overdue bill or day-to-day expenses.
But for those of us with a little discipline, $5,000 could place a big dent into a long-term savings goal. That\’s doubly essential for those of us who weren\’t saving at all. Perhaps the best thing you can do at this time is to put those funds to work for you thru investing.
Now, some would argue that a $5,000 windfall is a fantasy. However, this is an attainable figure for a lot of. If you can save $100 a week-about the amount many families spend at restaurants-then you can put away $5,000 in under a year.
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Easy? No. But it is possible. So, for those of you looking to get started, here are five ways to invest $5,000 now.
1. Save by having an online bank
Before you can start building a mountain of wealth, you have to protect yourself from falling a financial cliff. For somebody who is just starting out on their investing journey, I would suggest building up that day you need it fund.
Online banks are a great place to build an emergency money stash. While they don\’t have convenient physical locations, online banks tend to offer higher rates of interest. Without the need to pay tellers or heat physical branches, they can pass the savings onto you.
2. Money market funds
If you\’re investing for five years or less, then consider placing your cash in a money market fund. Money market funds generally buy high-quality, short-term debt that can be easily changed into cash. These are some of the safest, most liquid investments available.
Guaranteed Investment Certificates, or GICs, are another safe investment that offer higher yields. The downside is that once you\’re locked into a GIC, you won\’t be able to access your money until the specified maturity date.
3. Index funds
If you\’re young and have a long investment time horizon, you are able to take some risks. Investing in index funds offers a quick way to diversify across many asset classes, from stocks to bonds and real estate.
Index funds are becoming more popular than traditional mutual funds, and even for good reason. Due to there being no human manager making subjective stock picks, index funds charge lower fees. That often translates into better returns for investors.
4. Exchange traded funds
Exchange traded funds, or ETFs, are similar to index funds. When you purchase a be part of an ETF, you\’re buying a small slice of that fund\’s holdings. The benefit of ETFs is they can be bought and sold throughout the day, just like a person stock. Better yet, they generally have lower costs than their index fund counterparts.
Take the iShares S&P/TSX Capped Composite Index Fund (TSX:XIC), for instance. Investors in this ETF pay a measly 0.05% of assets under management in fees every year. That means you have to pay just $2.50 in fees for each $5,000 you\’ve invested. It\’s quite a bargain!
5. Individual stocks
Stocks or equities let you purchase a small a part of an individual company. This allows you to participate in and benefit from the company\’s growth, potentially earning lucrative dividends and capital gains.
Are a gadget geek who believes BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) is poised for any comeback? Then it is time to back up the truck around the stock. Fed up with getting gouged in the gas pump? Why not take a piece of the earnings by buying shares of Imperial Oil Limited (TSX:IMO)(NYSE:IMO)?
Fool contributor Robert Baillieul owns shares of iSHARES CAPPED COMP INDEX FUND.
The original form of this article can be seen at www.fool.ca