How to Invest 10K

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If you don’t have $10,000 readily available to invest but have $200 instead, believe it or not, your money could grow to $10,000 in no time. If you invest $200 monthly at an interest rate of 3%, it will become $10,000 in just 48 months. An investment of $200 per month can mean giving up a serious cigarette habit, canceling premium TV channels or taking the bus instead of paying for parking.

When $10,000 is available for investment, it’s time to consider the time value of money.

First, consider today versus tomorrow

You might be able to pay the rent for six months with $10,000, buy a four-season wardrobe complete with shoes and outerwear or buy a year’s supply of food, in-and-out, with tips included. However, $10,000 invested today could mean a home in the future, a child’s college education or a secure retirement.

A young investor with $10,000 in a retirement fund today could end up with a $1 million retirement fund in 40 years.  A 5% down payment on a $200,000 home is also $10,000. Assets that depreciate are not investments (a car is a great example), whereas an asset that appreciates (a house) is an investment. The more assured the potential appreciation, the more the asset fits the definition of investment. Insurance is not an investment. Insurance is necessary to prevent unexpected loss.

Auto, health and home insurance are not investments; neither are annuities or life insurance. Insurance is a cost that is added to an investment that limits the return available from that investment.

Now, consider time and timing

Investing the same amount on a regular basis is called dollar-cost averaging. The advantage of dollar-cost averaging is that regular deposits of static dollar amounts buy into the market, over time, through its ups and downs. The same amount buys fewer shares of a company when the market is high, but when the market is low; the investment buys more shares at bargain prices.

Dollar-cost averaging also insulates the investor against market volatility by spreading purchases over a period of time. If your $10,000 is put to work now, not later, the question becomes where to put all that money today. If a goal or purpose has a time schedule attached to it, then how you invest is adjusted toward more conservative selections. Investing for 30 years in the future is very different than investing for only a year or two.

An investor with a 30-year timeframe can buy the Vanguard 500 Index Fund Investor Shares (VFINX) or the pure growth shares of Berkshire Hathaway (BRK.B). A one-to-two-year timeframe allows for only “no-loss” investments such as U.S. Treasury bills or bank certificates of deposit (CDs). Investments of two to five years are a difficult balance of risk and time frame.

Decide if you want to loan or own

There are two ways to invest in securities of major companies—bonds and stocks.


A bond represents a guaranteed income paid in regular intervals to the bondholder for a certain period of time. The bond “matures” at the end of the time period, and the bondholder receives the “par value,” or $1,000.

Bond buyers make loans to the bond issuer for a certain rate of interest and for a certain period of time. The bond buyer becomes the lender just as the bank lends via mortgage to a homebuyer. The U.S. Treasury Department pays $28.75 per $1,000 on a ten-year bond, which trades for $978, so the bond’s yield-to-maturity is 3.13%. Bonds can also be used for speculation.

If Tesla (TSLA) seems too volatile, you might consider investing in the bonds of the same company. Tesla’s 5.3% bonds that mature August 15, 2025 are now trading for $843 per $1,000. That would produce a yield to maturity of 7.59%. But if Tesla turns a profit in the next two years, the Tesla 5.3% bond could easily trade where it was issued at $1,000 per bond. The Tesla bondholder would have a 19% capital gain plus the interest payments received along the way. The problem with investing in bonds for a two-to-five-year time frame is that the longer the bond, the higher the yield but also the higher interest rate risk.

The price of a long bond will drop as interest rates rise and the investor’s bond portfolio will shrink in value. A safer way to buy bonds and prepare for changing interest rates is known as a “bond ladder.” A bond ladder builder buys government bonds or bank certificates of deposit (CDs) in equal amounts over regularly spaced maturities. $10,000 invested in a short bond ladder would buy $2,000 of fixed-income securities in each of five different maturities.

When, after one year, the shortest bond purchased comes due, or matures, then the redeemed funds from that bond are used to purchase a long bond. Over the years, the portfolio will hold long bonds with the higher rates of interest, but with one-fifth of the portfolio liquidating every year. If interest rates rise, the investor buys the higher rates every year.

If interest rates fall, the portfolio holds the higher interest rates of the past. The cost of managing the portfolio, assuming a 1% commission on one bond purchase per year is 0.2% of the total assets involved. That is less than any actively managed mutual fund.

Treasury NoteMaturity Value% RateIncomePriceMaturityValueYield to Maturity
1-Year $2,000 0.000%$0.00 97.38510/10/19$1,947.70 2.675%
2-Year $2,000 2.750%$55.00 99.7819/30/20$1,995.62 2.857%
3-Year $2,000 2.875%$57.50 99.78110/15/21$1,995.62 2.943%
5-Year $2,000 2.875%$57.50 99.4069/30/23$1,988.12 3.001%
7-Year $2,000 3.000%$60.00 99.4389/30/25$1,988.76 3.088%
 $10,000  $230   $9,916.82 2.913%

Source: Wall Street Journal 10/11/18


Common stocks of publicly traded companies consistently outperform other types of investments over the long term, but managing a stock portfolio with a two-to-five-year time frame demands higher quality investments that provide dividend income. As the bond ladder simplifies fixed income investing, a fixed portfolio strategy also simplifies stock investing.

The Dogs of the Dow and the “Dow 5” are portfolios of stocks selected from the thirty stocks that make up the Dow Jones Industrial Average (DJIA). The thirty stocks that compose the DJIA are first ranked dividend yield. The Dogs of the Dow are the ten Dow stocks with the highest yields. Managing a Dogs portfolio involves rebalancing once per year. On the anniversary of the establishment of a Dogs portfolio, the investor again certifies the ten highest-yielding stocks in the DJIA sells those stocks that are no longer members and buys the new stocks.

Those that are sold likely provide profits, because stock prices rise and dividend yields drop. The Dow 5 (also known as “Small Dogs of the Dow”) strategy takes the selection process a step further by choosing only those five lowest-priced stocks of the ten highest-yielding. The Dow 5 strategy has outperformed the Dogs’ only strategy. The stocks are held for one year, and then those that are no longer the lowest prices are sold (at profits) and replaced with their next year substitutes.

SymbolCompany NameLast PriceDividendDiv. Yld 
PFEPfizer Inc.$42.81 $1.36 3.18%Dow 5/Dogs
CSCOCisco Systems, Inc.$44.12 $1.32 2.99%Dow 5/Dogs
KOThe Coca-Cola Company$44.64 $1.56 3.49%Dow 5/Dogs
VZVerizon Communications Inc.$53.33 $2.41 4.52%Dow 5/Dogs
PGThe Procter & Gamble Company$78.87 $2.87 3.64%Dow 5/Dogs
XOMExxon Mobil Corporation$81.60 $3.28 4.02%Dogs
JPMJPMorgan Chase & Co.$108.13 $3.20 2.96%Dogs
CVXChevron Corporation$118.43 $4.48 3.78%Dogs
IBMInternational Business Machines$139.02 $6.28 4.52%Dogs
MCDMcDonald’s Corporation$162.97 $4.64 2.85%Dogs

Source: Yahoo Finance 10/11/18

Final thoughts

An independent-minded investor might want to proceed cautiously at first in order to learn all there is to know from each new investing experience before proceeding to the next.

Remember the original intent and why the investment plan was created. Ultimately, the course the market will take next year is as unknown as next year’s weather.

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