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home | Greenback Mentor | Best way to invest $10,000

Best way to invest $10,000

Assuming you have funded your emergency funds, paid off your credit-card and automobile debts, and have a nice savings of $10,000 that you wish to invest today, it is time to search for the best way to invest that bundle of money. The first question to ask is - what is the time frame you are looking at for this investment? Anything under 3 years implies this money should not be put to work in the stock market - stick to the bond markets under those circumstances.

If you have a time horizon of 3 years or longer, you have the choice of going the route of mutual funds or buying individual stocks. If you have the time and interest to do some homework and willingness to track results closely, we would recommend that you take your chances with individual stocks. If you would prefer to be an armchair investor, a good value oriented mutual fund would be our recommendation. For a middle-of-the ground approach, choose a sector specific mutual fund once you have identified a strong upward trend in the markets. This requires a certain amount of reading and research on your part, but after that, you can hand over your money to the fund manager and let him or her manage the money for you.

Back in the mid-1990s, Internet stocks was the place to be. The trend however was not apparent until later in the decade (1998/1999 were spectacular years). The trick was to get in on the ground floor, and to make sure to step out somewhere near the top floor. From around 2000-01, precious metals (gold, silver) as well as commodities like copper, nickel and aluminum had a great run. This run has now entered a consolidation phase, and the near term trend is definitely south. But the larger upward trend of commodities is nowhere near running its full course, even as a third of the human population finally gets to experience a higher standard of living.

As part of the commodity trend has been the trend in the energy sector. This sector has seen an even more spectacular rise than the general trend in commodities (and grabbed more headlines for sure). And in a situation that is somewhat unique to this sector, "peak oil" is looming as an imminent possibility. "Peak oil" is that point in the overall production of oil from where the amount of oil produced from oil fields around the world cannot be increased any further. This does not imply an end of oil - simply that oil production cannot keep up with the rising world demand anymore. The resulting effect on prices will be spectacular (though we may have more to worry about than just price of oil at that stage).

Thus the best way to invest $10,000 would be to first identify a strong uptrend in the market. Research commodities, real-estate, energy, domestic and international stocks, and the various industries - technology, retail, auto, transportation and so forth. Once you have picked a strong uptrend, research the industry further to seek out leadership within the industry. Use publications such as Investor's Business Daily for this task. After you have chosen the leaders, look at their fundamentals such as return on equity, debt, earnings growth as well as future prospects. Then check their charts to see that they are building a strong base or have just had a break-out. Check the mood of the general investment community towards these stocks. If it is lukewarm, then it might be early enough in the uptrend that you might make a lot of money in those companies. This is a lot of work, but will result in the best returns for your money.

As mentioned before, alternatively, once you have chosen a sector, simply find a mutual fund in that sector and invest through that fund. This will reduce your returns, but will save you plenty of time and effort in research and tracking. Another fine alternative is to follow some outstanding investment newsletters and follow their recommendations. Give these letters the same 3 years time frame to help guide you to investment success.

Happy investing!

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