Erik Johnson has just become a heir to $15 000. He is 23 years old, and he has graduated from a University business program. He works as an assistant managager of a retail store. He lives with his friend in a two bedroom apartment. He saves 5% of his monthly paycheck. Erik wants to save his inheritance in secure investments because he does not wish to lose out on his money. Though he also wants a good yield on his investment. The only main cost that Erik arranges is a 1 week vacation in the Carribean. What suggestion may possibly be given to Erik on how to invest his $15 000?
I don't get the whole idea of investments, Im a beginner on this stuff, and I just "dont" get it. Therefore, could someone please simplify all this for me to understand. I really don't get it.
When a person has extra cash, s/he wants to put it somewhere that will earn more money or pay a dividend, or at least be safe.
The biggest investment many people make is to buy a house. Hopefully, the house will increase in value and the owner will make a profit when they sell it.
Other investments include:
government bonds that are safe and play a small interest
certificates of deposit, sold at banks, that are also safe and earn a little interest
stocks (part ownership) in businesses. These are risky, but some pay good dividends and have the potential to increase in value.
Im kind of getting it. The suggestion I would give to Erik on how to invest his $15 000 would be to get a certificate of deposit. What about like get a GIC or some other saving account? Stock markets have ups and downs, so that would be a bit risky.
What else?
Could he invest in a real estate?
Wouldnt the Bank account be a safest way to invest your money into? There are some interests but less risk. You cant lose your money on bank accounts. Bonds are another way to invest your money into.
Could I get more information please
Savings accounts are paying almost nothing in interest.
I'd advise Erik to invest in federal, state, or municipal bonds. The interest on them is better than a savings account and he won't have to pay income taxes on the interest. Most of these bonds are almost as safe as a savings account.
However, since Erik is only 23, I suggest he put some of the money into bonds, and some into some blue-chip stocks that pay good dividends. These are low risk, especially if he doesn't need this money for a few years.
After the recent debacle in real estate where the prices of most land and houses plummeted, I'd stay away from real estate. Buying a house for himself is emotionally satisfying, but not necessarily a good economic investment.
Investing can seem confusing at first, but I'll break it down for you. Erik Johnson wants to invest his $15,000 inheritance in a secure way with a good yield. Here are a few suggestions that are simpler to understand:
1. High-yield savings account: Erik can open a savings account with a high-interest rate. This is a low-risk option that offers conservative returns. However, the interest rates might not be as high as other investment options.
2. Certificate of Deposit (CD): A CD is a fixed-term deposit where Erik can lock in his money for a specific period (e.g., 1 year). CDs usually offer higher interest rates than regular savings accounts, and they have a guaranteed return as long as the money stays in the account for the specified term.
3. Index funds or exchange-traded funds (ETFs): These are investment funds that track a specific market index, like the S&P 500. They offer diversification by investing in a broad range of assets. Erik can buy shares of these funds, and his money will be spread across many different companies. Index funds and ETFs generally have lower fees compared to actively managed mutual funds.
4. Robo-advisors: If Erik is unsure about managing his investments himself, he can consider using a robo-advisor. These are online platforms that use algorithms to create and manage a diversified investment portfolio based on Erik's risk tolerance and financial goals. They automate the investment process and are typically more affordable than traditional financial advisors.
Remember, it's always a good idea for Erik to do his own research and consult with a financial advisor to understand the specific details and risks associated with any investment option.