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Is $4000 worth investing?

slugg

slugg

Diamond Member
Hello all. I'm toying with the idea of investing my pathetic little $4000 I have in savings. The problem is that I've never invested in anything and I really don't know what I'm doing. I don't know where to start.

So before I try to wrap my head around investing, is $4000 even enough to get started without wasting my time?

My goal is to just make a few bucks on the side (and probably re-invest). Obviously, this is a short term goal. Not looking to get rich.

All tips and pointers are welcome. Thanks 🙂
 
Anything is enough to get started. $4000 is plenty.

Unless you know of a stock or something that is clearly undervalued and will inevitably go up (like buying Ford a couple years ago at $0.80 a share) It's not worth investing for the short term. Period. Short term, it's as easy to lose money as make money. And a lot of people have been losing money lately. So I don't really recommend day trading if you're not ready for a big time/research investment.

The "safe" financial advice would be to look into a long-term, tax deferred retirement account like a Roth IRA. (Deposit $3000, pocket the tax refund, and let time, compound interest, and your mutual fund manager work their magic.)
 
for short term, throw it into an internet savings account.

for long term, throw it into a market index fund and forget about it.

i wouldnt do either of those things until i had maxxed out my tax-benefited accounts (401k/Roth IRA/traditional IRA)

i treat savings, retirement money and investment money as 3 separate entities. in that order of importance.

my basic guide to investing.
 
At first, I thought this was just going to be answered in the "Put it into a Roth IRA and into an index fund" but then you threw in the wrench of it being for the short term.

The answer is: if that is money you could potentially need in the near future (next 5 years), keep it the hell out of the market. The only money that should go in the market is money that you won't need for 5-10 years, minimum. Any money that you plan on putting into individual stocks should be money that it won't seriously affect your life if the crap hit the fan and it becomes worthless.
 
My goal is to just make a few bucks on the side (and probably re-invest). Obviously, this is a short term goal. Not looking to get rich.
Click to expand...

That's usually "gambling" rather than "investing." People try their hand at picking stocks, and some make money but most do worse than if they invested.

If you want to think more long-term, a Roth IRA would give you tax-free growth of your $4,000 for when you retire.

But: you should still keep at least $1,000 - 2,000 in a high interest savings account for emergencies so you don't spiral into debt when something unexpected happens.
 
You are the perfect test case for a common decision. (1) You can invest $4000 now in a Roth IRA. (2) Or you can invest $5000 now in a regular IRA and get ~$1000 less on your taxes (balances out to $4000). The difference comes down to whether you want to pay taxes now when they are low (Roth) or taxes later when rates are probably high (regular). If I were you, I'd probably chose option (1).

I'd also invest in a mutual fund (something like Vanguard's VFINX) if I were you. That is about as safe as you can get investing and since the market is down now, it might do well in the short term. It definately will do well in the long term, so don't sell it unless something extreme happens.

Once you get your feet wet with that, THEN think about making a few bucks on the side.
 
DaveSimmons said:
That's usually "gambling" rather than "investing." People try their hand at picking stocks, and some make money but most do worse than if they invested.

If you want to think more long-term, a Roth IRA would give you tax-free growth of your $4,000 for when you retire.

But: you should still keep at least $1,000 - 2,000 in a high interest savings account for emergencies so you don't spiral into debt when something unexpected happens.
Click to expand...

Noted. So maybe for my purposes, a high interest savings account may be most appropriate. So can you point me in the right direction?
 
Don't bother with saving accounts at too-big-to-fail banks. For example, keeping $4000 for one year at Bank of America will give you about $4 in interest minus ~15% tax. Just one fee or charge will eat all your interest plus more. If not, then you'll have enough to buy a cup of coffee. 🙂
 
gevorg said:
Don't bother with saving accounts at too-big-to-fail banks. For example, keeping $4000 for one year at Bank of America will give you about $4 in interest minus ~15% tax. Just one fee or charge will eat all your interest plus more. If not, then you'll have enough to buy a cup of coffee. 🙂
Click to expand...
so not getting a free cup of coffee is somehow better?

there really is no excuse to ever get charged fees from banks either
 
In the short term, the best way to make money is through speculation - gold, shares, etc. The problem is that you're about as likely to lose as you are to win. If you want to do this, make sure that you're prepared to lose whatever you invest, and go into it emotionally detached from the money you do invest. Other than that, bonds, term deposits, or savings accounts, depending on the interest rate. It's pretty good here as my savings account interest rate is 4% at the moment, but I don't know how interest rates in the US are.
 
OP. you must start somewhere.

The journey of a thousand miles begins with a single footstep.
 
ichy said:
An IRA is not an investment, it's simply a tax vehicle.
Click to expand...



The latest retirement seminar I went to described it as a terrible "vehicle".

Fact: Taxes today are as low as they have been in the last 50 years.
Fact: The Gubment is going to have to raise taxes to reign in the deficit.
Interesting fact: Taxes are bound to increase and therefore our tax liability in the future will most likely be higher than it is today.


Bottom line: It appears that investing to the max employer contribution is the current best way to go.


Invest at your own risk ...
 
dud said:
The latest retirement seminar I went to described it as a terrible "vehicle".

Fact: Taxes today are as low as they have been in the last 50 years.
Fact: The Gubment is going to have to raise taxes to reign in the deficit.
Interesting fact: Taxes are bound to increase and therefore our tax liability in the future will most likely be higher than it is today.


Bottom line: It appears that investing to the max employer contribution is the current best way to go.


Invest at your own risk ...
Click to expand...

Roth IRA would be a good option then. Pay taxes now, don't pay it later.
Of course the fear would be the government would decide to tax them later. But they would have hell to pay if they did that (though that's of course no guarantee that they won't)
 
HardcoreRobot said:
so not getting a free cup of coffee is somehow better?

there really is no excuse to ever get charged fees from banks either
Click to expand...

For each their own, but I wouldn't bother wasting time to create and track savings account just to "earn" 1 cup of coffee per year, all while having less liquidity and risking some stupid fee/charge than can arise due to my or bank's mistake. I rather use that time to consider other investment options, or use that time to do something else.

In other words, "not getting a free cup of coffee" >= "getting a free cup of coffee for keeping $4000 in a bank for 1 year". IMHO.
 
dud said:
The latest retirement seminar I went to described [ IRA ] as a terrible "vehicle".

Fact: Taxes today are as low as they have been in the last 50 years.
Fact: The Gubment is going to have to raise taxes to reign in the deficit.
Interesting fact: Taxes are bound to increase and therefore our tax liability in the future will most likely be higher than it is today.


Bottom line: It appears that investing to the max employer contribution is the current best way to go.


Invest at your own risk ...
Click to expand...
Those are arguments against a traditional IRA which is taxable at retirement, but are in favor of Roth IRA where withdrawals at retirement are tax-free.

But yes, 401k employer matching money beats either kind of IRA if you can only make one retirement investment.
 
DaveSimmons said:
That's usually "gambling" rather than "investing." People try their hand at picking stocks, and some make money but most do worse than if they invested.

If you want to think more long-term, a Roth IRA would give you tax-free growth of your $4,000 for when you retire.

But: you should still keep at least $1,000 - 2,000 in a high interest savings account for emergencies so you don't spiral into debt when something unexpected happens.
Click to expand...
high interest savings is an oxymoron? 😛

Nice thing about Roth IRA is contributions can be withdrawn penalty-free.
 
Invest long term in index funds. Don't use managed mutual funds since they are proven to underperform index funds in the long term, plus they are more expensive. Stick with Vanguard index funds.
 
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