I inherited $5,000, and I would like to
make a smart investment with my money. I’ve been looking at investing in
Fortune 500 companies, but I don’t have the capital to invest enough into the
companies that I’m interested in owning stock in.
Amazon stock is at over $2,000 a share,
and owning just two shares doesn’t seem like a smart choice.
Are there any investment options that
allow me to invest in an array of companies at once in a smaller sense?
Yes, and it’s one of the best options available:
You’re going to invest in one of the financial
instruments that Warren Buffett recommends above anything else. Index funds are
essentially an index of the largest companies in an index. So, you can invest
in the Standard & Poor’s 500 index fund.
Vanguard’s 500 Index Fund is a popular
choice for investors, and the fund has generated a 52% return over the past
five years. The fund includes exposure to the top 500 companies in the US, and
this will be set across numerous industries.
You purchase stock in the index, and you’ll be
able to enjoy a 0.04% expense ratio. You will need to invest a minimum of
$3,000 in the fund, but you’ll have exposure to all of the largest companies in
the US. The list of companies includes Amazon, Google, IBM, Apple,
Ford and a plethora of other companies across all sectors.
It’s important to realize you’re investing in a
fund which holds shares of these companies as assets. Buffett bets on index
funds every time because they often perform better than the overall stock
The fees are lower than mutual funds or other
You’ll also enjoy a very diverse portfolio of
products without needing to juggle the diversification process on your own.
Since you have $5,000, this is enough to invest in the fund with $2,000 left
You can choose to put all of the $5,000 into the
fund, and in a 5-year period, this fund would have grown to nearly $8,000 –
But if you want to keep some of your portfolio
liquid, you can opt to keep the money in the fund and also put the extra $2,000
into bonds or other low-interest investments. These investments are important
for retirees that may need to pull money out of their investment early. If you
invest in stocks, you will have to sell the stock to use the money.
Bonds will have a maturity date, and after this
period, you’ll be able to cash in on your bonds.
There are treasury bonds which are the safest,
but there are also corporate bonds that allow you to purchase bonds from
corporations. Corporate bonds are still relatively low-risk, but these bonds
have a higher interest rate than government bonds.
Keeping some cash in savings is also not a bad
Within 10 years, you’ll see your $3,000 index
fund investment swell to over $6,000 which is a nice investment for money that
was handed down to you.