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- You've saved up $5,000.
First of all, I just want to applaud you for that,
because that is pretty significant.
That's a lot of money to have saved up.
So maybe you've been working a part-time job
on top of your other job,
or maybe you've just been a really good saver,
and you have accumulated $5,000.
So, it's something a lot of people
don't have the ability to do,
is to save up a substantial amount of money like that.
But, your question is,
how should I invest that $5,000?
Because right now it's probably
sitting in your checking account or savings account,
earning some fraction of a percentage of interest
from your bank, and you're saying,
okay, is there any way I can make more money from that?
Absolutely, you can,
but based on your circumstances,
I have four different things I'm going to recommend
as far as investing that $5,000.
And really what it comes down to is
whether you're looking to invest that money long term,
or if that's money you're going to use
maybe a couple of years down the road,
maybe in five to 10 years you plan on buying a house,
or maybe you're going to need
to buy a car in a couple of years,
but you want to do something with the money short term.
So I have a couple different examples here
of how I would recommend investing $5,000.
And if you guys aren't quite at $5,000,
but if you have $1,000 saved up,
that was the last video I did called
"How to Invest $1,000"
and I will link up to that at the end for you,
if you guys are curious about that at all.
And then I'm going to continue this series,
probably next I'll do how to invest $10,000,
so be on the look out for that.
Anyways, the first thing I'd recommend
if you're looking to invest $5,000,
is to open up a Roth IRA.
If time is on your side,
let's say you're a young person,
maybe you're in your 20s or your early 30s,
something like that,
or maybe even younger,
maybe you're super ambitious,
and you're 18, 19, 20, somewhere around there,
and you're super young,
then time is definitely on your side.
So, your best bet is to open a Roth IRA
to invest long term for your retirement.
Now, I'm sure you're heard of a 401K,
which is generally sponsored by employers,
so once you work for a company,
and you're a full-time employee,
one of the benefits they offer
is an employee sponsored 401K.
And if you're lucky,
your employer will also match your contributions
up to a certain percentage.
So, that's something to consider as well.
But, anyways, a Roth IRA
is separate from that traditional 401K
that's sponsored by your employer.
With a Roth IRA, the taxes are paid ahead of time,
and there's a limit to your contribution for your Roth IRA,
and it depends on your age,
also, what income limit you fall under,
or your income bracket with the IRS.
So, basically, in 2016,
and this may change in 2017,
but this is the most recent figure.
But in 2016, if you're under 50 years old,
you can contribute $5,500 a year to that Roth IRA.
Well, that's what you could do in 2016.
So if you have $5,000 to invest,
you could almost max out
your Roth IRA contribution for the year.
And if you're over 50 years old,
you can contribute up to $6,500 to a Roth IRA.
Now, like I said,
you need to fall within the IRS income limit,
which, as of 2016, if you file single,
that's $117,000 of income.
So, that's something to consider as well,
I mean, I'm sure a lot of people,
that number is way far off,
but maybe for other people,
you're close enough to that limit where you say,
okay, maybe I want to contribute to a Roth IRA
before I go over the limit and I'm no longer allowed to.
The other thing is, too,
to contribute to a Roth IRA,
you need to have earned income,
which the best way to explain that is basically
you're getting paid to do a certain type of work,
so it's kind of like money
that you're actually earning from a job,
or from some other income source,
but it has to fall under
what the IRS classifies as earned income,
which most of us wouldn't have that problem, anyway,
but I just figured that was worth mentioning.
Anyways, so a traditional 401K is employee sponsored
and you don't pay taxes when you purchase that plan,
you pay taxes when you redeem.
So that's why with a 401K, a traditional 401K,
it's tax deductible,
because it comes off of how much you made that year,
it's almost as if you didn't make that money
because you're putting it away tax-free.
But, when you redeem it at retirement,
you'll pay taxes at that point.
But with a Roth IRA,
since you're buying it basically
with money you already paid taxes on,
you've paid the taxes up front,
and it's like a personal retirement fund,
and the advantages to this is that your Roth IRA
will grow tax-free over time,
you don't have to pay taxes
if you redeem it within the certain guidelines
of when you have to redeem it.
There's certain figures on it,
but unlikely by the time the 20 and 30 year olds
have reached retirement, that will change.
But, you guys can do research on that
if you're curious what the limit is right now
of how early you can redeem a Roth IRA or 401K.
Anyways, so, the other thing that's cool about a Roth IRA
is that you can use up to $10,000 of earnings
from a Roth IRA towards the purchase
of your first home penalty free.
So if you put money into a Roth IRA now,
let it grow over time,
and you had earnings at that point,
money that the stocks
or whatever it's invested in have earned,
you can use those earnings and put it towards your home.
The other things that's cool, too,
is you can take out any contributions to a Roth IRA
at any time without paying a penalty,
but it's only when you take out the earnings
that you would pay a penalty.
So if you contributed $5,000 to a Roth IRA
and then three years from now took $5,000 out,
because you contributed that much,
there would be no penalty with that.
But if you tried to take out money that you had earned,
and that point you would pay taxes on that money,
and a significant amount of taxes.
So you wanna make sure that you're in it for the long run,
or you're putting it aside
and going to use that towards the purchase of a home.
Otherwise, you probably don't want to be putting money
you're going to want to use short term into a Roth IRA.
Now, if you're looking to open a Roth IRA,
the two most common providers that I see
are Fidelity and Vanguard.
I don't actually have a Roth IRA yet,
I just have my personal,
well, actually, my employee sponsored 401K,
and that's through Vanguard,
and they have a nice platform,
it's easy, pretty straight forward and easy to follow.
Anyways, the second way to invest $5,000.
Let's say you're somebody who plans on
buying a car or buying a house or something
in the very short term.
Maybe you have three, four, five years,
something like that,
and you're planning on using this cash.
Well, rather than have that money
sit in your checking account,
why not open up a certificate of deposit.
So, this will basically give you
short term access to cash
with a guaranteed rate of return.
Now, don't expect any crazy rate of return,
with a CD, they're generally a lot lower
what you would get from any other type of investment
or a mutual fund.
They're going to be a lot less than that,
probably somewhere in the range
of what a bond would give you,
maybe even less in some cases.
But it is something,
and any rate of return is better than nothing.
So rather than let that money sit
in your checking or your savings account,
you might as well open up a certificate of deposit
for a guaranteed rate of return
for however long you're not planning on using that money.
The advantage to this, too, is
you're getting your rate of return
and it's guaranteed,
so you know what you're going to get.
The only thing is you have to make sure
you commit to that maturity rate of the CD,
because if you redeem that CD early,
there's a lot of penalties associated with that,
and it might wipe out all the earnings that you made,
even in these initial years,
if you basically close out that CD
maybe a year or two earlier than the maturity date,
it could wipe out all those earnings from the years prior.
So, just make sure if you're investing
in a certificate of deposit,
you commit to that maturity date.
Okay, so the third way to invest $5,000
would be to invest in a stock portfolio.
This is probably going to be the one that most people
are leaning towards,
just because that's the kind of videos that I make
on my channel here,
are most related to the stock market,
because I trade a lot of individual stocks,
and I love educating people on the stock market
and learning more about it myself.
I would say, for anybody who's looking to learn
as much as possible,
I would recommend investing in individual stocks.
Now, there is much higher risk
when investing in individual stocks,
but this will be the most active form
of investing that you'll have,
because you've got to understand
with things like a 401K or a Roth IRA or a mutual fund,
things like that,
those are very passive investments,
they're the kind of investment where you contribute to it,
and maybe you continue to contribute to it over time,
but you don't do anything with it itself,
because they're managed by other groups.
So, with a stock portfolio,
you yourself are managing the investments.
So, if you want to be more active with your investments,
start a small stock portfolio.
Here's a couple ways you can do this.
Let's say there's a company that you just absolutely love.
Maybe you're just so into Apple, or Facebook,
or one of these big companies,
and you really support them,
and you see them having tremendous success
in the years to come.
Well, why not invest $5,000
in a company that you'd be really proud to own.
And then when you're out with your friends,
you can brag and be like,
hey, I have a couple hundred shares of Apple,
or whatever it is.
That's probably unrealistic,
because their stock price is high.
But, whatever it ends up being,
you can be like, oh, I have $5,000 of Apple stock,
or Google stock, or Facebook,
any company, those are just a couple examples,
I know a lot of millennials like those stocks,
because they're tech stocks.
Maybe there's a company that you really support
and want to get behind,
and you want to invest your money in them.
Another example would be to invest $1,000
in five different companies.
Now, you could do five different companies
of the same sector, or industry.
If you see an industry that you feel
will be coming into favor in the near future.
Or, to be further diversified,
you could pick five different industries
and invest in your favorite company in each one.
So, it all depends on how diversified you want to be.
And obviously the more diversified you are,
the less risk there should be with that.
So, if you're looking to mitigate risk,
be more diversified,
but if you'd rather invest in something you're proud of,
or a company you really enjoy,
why not go all in with that company?
Just make sure you do your research beforehand.
Another thing you could do as well,
this is popular,
is investing in dividend stocks.
So, maybe invest $1,000 in five different stable companies
that pay a nice dividend.
What I want to recommend to you guys,
this is DRIP here,
that stands for a Dividend Reinvestment Program.
Make sure if that's available to you,
that you go ahead and do that,
because that's how you can take advantage of
compounded with your investment.
So what happens is, every quarter
when those stocks pay a dividend,
it automatically gets reinvested
into the stocks that you have,
you generally don't have to pay
any commission on that trade,
and at that point you own more stock shares,
and each of those shares
will then earn dividends in the future as well.
That is the beauty of compounding,
and compounding in and of itself can make you very rich.
So make sure you set up a dividend reinvestment plan
if you're going to go ahead and invest in dividend stocks.
And you can also invest $5,000 in one dividend stock,
if you really like that company.
There's no reason not to do that.
The only thing I would suggest
is avoiding investing less than $1,000
in any one given stock,
because you have to consider your cost for commission.
So just, for me, personally,
I trade with Scottrade,
and it's seven dollars a trade,
so, when I buy a stock I pay seven dollars,
when I sell it I pay seven dollars.
So, it's like $14 for a round trip on a stock.
So any time you're making an investment,
understand that you have to earn enough from that stock
to offset that commission.
So, it's just something to consider.
I know I have a lot of people reaching out to me
they'll say, hey, I have $1,000
should I invest in 10 different stocks
or one different stock?
And my answer is always, I would invest in one stock,
at most, $500 in two different stocks.
Because if you invest only $100,
and you have $14 of commission to offset,
that means that stock price has to come up 14%
just to break even.
So, the more that you have invested in a stock,
the easier it is to offset that commission cost.
So, that's just something
I wanted to throw out there to you guys.
And like we said,
the more diverse you are with your investments,
the better you are.
And I wouldn't suggest individual stocks
are your main investment,
they're not for me, either.
I have my 401K,
I have my mutual fund,
and I also have my individual stocks.
So it's kind of a small portion of my portfolio,
but I really enjoy trading stocks,
and if it's something you're interested in,
I recommend doing it,
just don't make that your sole investment,
because it is higher risk trading individual stocks.
It should be part of your overall portfolio.
But, like I said,
you'll definitely learn the most trading individual stocks
because they're the most active investment.
I would just recommend investing in stocks
that you're looking to hold long term,
because the more you're trading in and out of stocks,
the more you're paying for commission,
and that becomes kind of an expensive investment.
Just something to throw out there.
Anyways, before I get into number four,
I just want to mention,
in the last video I also talked about mutual funds,
this is also a great idea,
I just didn't want to cover it again,
because I would just basically
be repeating the same information
but saying $5,000 instead of $1,000 this time.
So if you guys want to listen to me
talking about investing in mutual funds,
watch the video on how to invest $1,000.
So that can apply to this as well,
you could easily $5,000 into a mutual fund.
In fact, when I opened my first mutual fund,
that's what I started out with was $5,000.
So, that's a great amount of money to set aside for that.
Anyways, number four is to start a business.
And I know I also mentioned this in that first video,
investing $1,000,
but when you have $5,000,
you can potentially start a business that has
a small upfront cost.
This is the investment that will earn you
the greatest return on investment
because you get to have sweat equity in that business.
So the harder you're willing to work,
the more work you put in,
the more money you're going to generate
from that investment.
So I just have a couple of business ideas
for you guys that have a small upfront cost.
Number one would be a virtual assistant,
so maybe you have to spend the money on
a computer, a nice telephone system,
but at that point, you could be a virtual assistant
for clients and companies.
If you're already tech savvy,
and good at a lot of stuff on the computer,
being a virtual assistant you get paid by the hour,
and you can make a lot of money doing that,
and you could do it with your own job,
maybe when you go home from work,
you do this for a couple of hours.
Maybe you do it on the weekends,
or it could be your full-time job.
I know a lot people doing this full-time,
there's a lot money to be made doing this.
Number two, application development.
Again, this is kind of technology based,
so would need to have some knowledge of software,
but you could either be a application developer
for other companies, or other individuals,
or you could go into it for yourself
and invest the money into your own apps
that you hope to sell or advertise on down the road.
So these are the kind of investments that I like because
you're building something for yourself,
and you own this,
and at that point, that can generate a lot of money for you.
Next would be like event planning.
So maybe you want to invest in
stuff that you would need for any kind of event.
So maybe tables, tents and stuff, sound equipment,
and that's the kind of stuff maybe you could have
a hospitality business where you would set up for people,
rent out the equipment for the day,
and charge people maybe $500 or $1,000 for the day
for all that equipment.
And you own and maintain it,
but they pay you to use it
and to set it up and dismantle it.
So that's another business.
The other thing, too, to think about,
maybe you're going to go out there and buy
the blow-up bouncy houses and rent them out to kids parties.
A lot of people think these businesses are kind of crazy,
I know in my last video on how to invest $1,000
I mentioned getting your clown certification
and going to parties as a clown.
And I had a couple people comment, they're like,
are you kidding? Is this a joke?
And I'm like, it sounds like a joke,
but there's probably a lot of money to be made
being a clown for a kid's party.
So maybe this sounds crazy,
to go out there and buy a bouncy house,
but think about that,
if you could rent that out every single weekend
during the warm weather,
that could generate a lot of money for you.
Next would be maybe a vending machine business.
So if there's a lot of laundry mats
or places in your area where there's not vending machines,
you could buy the vending machines,
go in to the business,
and say, hey, can I place this here?
I'll give you 10%.
Or what's the more popular thing to do is say,
hey, I give 10% profits to charity,
can I put this in your business?
You can help me earn money
and also give money to a charity.
A lot of people like to leverage that,
so they have to pay the business itself the money,
because it's kind of hard to keep track of.
So you could always try doing it that way.
And then the last thing I have on here is
a handyman or a lawn care business.
So maybe you need to invest the upfront costs
into a truck or some tools,
or some kind of limited liability insurance
to start your own business,
or maybe some lawnmowers,
stuff like that,
and I just wanted to throw in a story here quick.
As far as this handyman business goes,
I was out, it was actually just my 22nd birthday
over the weekend,
actually, I'm not sure when I'm uploading this video,
but it was recently my 22nd birthday,
and I went out to a couple bars with my friends
just to hang out.
And I ran into this guy who seemed like,
he definitely looked like a tradesman,
you know, kind of maybe a little rough around the edges,
and he told me that his job
is basically to go all these bars
when somebody just destroys the bathroom,
and he cleans out the toilets.
I was like, aw, man, that's a terrible job.
And he's like, "yeah, it sounds pretty bad,
but I made over $200,000 last year."
And my jaw just dropped.
And maybe he was gloating,
I don't know if he's being completely factual with that,
but, hey, that's hard work, man,
that's a lot of sweat equity going in to that.
But if he's making $200,000 cleaning up toilets at bars,
that's not a bad way to do it, man.
That's a good amount of money.
So maybe start your own handyman business,
something like that.
If you're willing to get down and work,
and do those dirty jobs,
there's some serious money to be made.
Anyways, guys, that's pretty much
all I've got for this video.
Like I said, next I'll probably be doing
how to invest $10,000,
so be on the look out for that.
If you guys have any questions
about what I covered in this video,
or questions in general
about the topics I cover on this channel,
feel free to drop me a comment below.
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And I thank you guys for watching this video.
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