If you have been the beneficiary of that windfall recently, the primary task is to set down your specific goals for the funds. And Ask yourself following questions…
- What is your age group?
- What is your asset base?
- Are you already financially secure?
- Are you looking for current income or building for the long term future, say retirement?
- What is your outlook for short and intermediate economic conditions?
Once these questions have been truthfully and accurately answered, then you can go on with question of where to invest $25,000? In all honesty, $25,000 is not a huge sum of money that can produce a well diversified portfolio, therefore it may be wise to concentrate on more immediate concerns.
The correct mix of differing types of investment will have to depend on the specific goal for the investment, as well as personal risk tolerance. Nevertheless, here are a few tips for consideration:
- Pay off personal debts, especially credit cards, unless the interest rate incurred is less than the prevalent inflation rate, then this step can be skipped.
- Set aside at least three months of necessary monthly expenditures into a liquid investment. For this purpose, Exchange Traded Funds (EFTs), index funds, or mutual funds that concentrate on intermediate corporate or government obligations should be suitable. Withdrawals can be readily made in just a matter of a few days, providing for almost immediate access in case an unexpected and adverse event occurs. Tax advantaged funds are preferred, unless the return on investment can handily exceed tax consequences.
- Take maximum advantage of (401)k plans or Roth IRAs, as applicable.
- Participate in an employee stock purchase program if possible, as employee purchases can typically enjoy a 10% to 15% discount over market prices, then the shares can be resold at a quick profit. This process can be repeated as applicable.
- Pay down your mortgage, unless the mortgage has been recently granted and prepayment penalties may apply.
- Starting an online home based business can have advantages, as the learning curve may be somewhat prolonged. Where you can invest $25,000 that is sitting idle in bank is a good question to ask, and when not subjected to financial pressures, a cool head is in a much more favorable position to make desirable decisions that can contribute to the ultimate success of the business.
- Unless the funds are exhausted, a more aggressive approach may be called for. In today’s uncertain economic conditions, even the best money managers can easily stumble, thus investing in mutual funds that have a high concentration of defensive stocks will appeal to peace of mind by reducing risk and by providing a steady, albeit perhaps not spectacular, return.
- Shares of companies that pay dividends with a dividend yield that exceeds the rate on current U.S. Treasurys is highly recommended. Sectors such as health, utilities, or consumer staples are widely recognized as belonging to the defensive group. Companies with adequate free cash flow can also be strong contenders to increase their market share as they are in the position of taking advantage of weakness, even perceived, in their competitors.
If you have USD 25,000 in hand, it is usually recommended to diversify your portfolio in a smart way. Here is what we’ll do if we ever wanted to do this…
1. 25% in Government Bonds or Government backed securities
2. 10% in Gold as of May-2013 gold seems to be trading at lower level of $1385 per/ounce with all time of $1920 (Sep-2011). It is known that some point of time in future gold will pickup, you can even further divide your gold buying in3 parts to average your total gold investment. In next 5 years it is expected it will give 50% return (Average 10% a year)
This table will demonstrate “how to diversify” the corpus you wanted to invest. It is always recommended to take help for qualified financial planner when it comes to execute the plan.