Wednesday, December 10, 2014

$500 Investing Suggestions Better Than The Motley Fool's

What would you do today with a $500 windfall?  Would you go out and buy that 50-inch flat screen you so wanted to get for Black Friday, but couldn't?  The Motley Fool's How-id-invest-500-today goes far in encouraging you to invest this amount.  But it falls short in allowing their three contributing analysts to tell you where to put this money.

First, most people with just $500 to invest today are probably not going to be professional stock market traders or investors.  They may not know when to buy and sell the shares of the three companies presented in the article as compelling buys, Netflix (NFLX), Google (GOOG), and Procter & Gamble (PG).  Should newbie investors take the advice of these analysts and buy these shares today, if they could?  What about the prospects for the future of these companies?  Should novice investors reading this article follow the investment thesis/outlook of these analysts?  They also did not offer investors with an exit strategy.  What should drive an investor of NFLX, GOOG, & PG to consider either taking a quick loss to minimize further pain or to ring the register to capture any gain?  Suffice it to say, the recommendations of these analysts does the small/novice investor no justice.  Here are my recommendations of what to do with $500 today, tomorrow, month even!

*Note: I will not be commenting on tax implications.  All investment gains are taxed in taxable (as opposed to retirement) accounts.  Also, read my Disclaimer page.

1.  Buy 50 shares of Rich-Uncles stock.  This CA commercial Real Estate Investment Trust crowdfunding company's limit has recently been lowered to a minimum of $500.  With a dividend yield of 7.5% and both cash payment or reinvestment option, there is not much to dislike about this investment.  Your first year return, with reinvestment of the dividend and compounding interest, would be $549.  Keeping the same amount, i.e., not buying more shares would have you up to $603 at the end of year 2.  Best part, there are no fees to buy the shares, meaning all of your $500 is put to work.  Visit the site or read some of my most popular posts on R-U to learn more.  *There are investment suitability requirements and you must also be a CA resident, a citizen of Mexico, or Canada.

2.  Buy 15 shares of Ford (F) at today's price.  Then buy 15 more if the price drops below your cost basis.  Today, 12/10/14, Ford stock closed at $15.16.  So if you had a brokerage account with a discount broker online, you could afford 30 shares at least.  Buying them in two trades gives you a chance to establish a position.  If the stock trades below your cost basis, buy the other 15 shares.  If it doesn't, do nothing.  Enjoy the gains.  You'll have half of your cash on hand should the overall market trend lower, taking all stocks lower.  Why Ford?  See a previous CCM blog post: yahoo-and-ford-two-stocks-delivering OR 12/9/14 article on Ford for 2015.  Currently, the stock's earnings yield (Earning per share/Price) is 10.1%.  It's Return On Invested Capital or ROIC (Net Income - Dividends/Total Capital) is not great at 4.61% but that is because of what Ford is doing to be a great company for years to come.  Exit IF...Ford epically fails to execute on delivering the new aluminum F-150.

3.  Buy 5 shares of Vanguard's FTSE Europe Exchange Traded Fund, VGK.  Then buy 4 more if the price drops below your cost basis.  VGK closed at $53.69 today.  The equity has dropped 3% since Friday of last week on Europe deflation fears, plus the overall market is down this week on gasoline prices continuing to fall.  Not to mention Mario Draghi chickened out again on pulling the ECB's lever for Quantative Easing.  Year to date, this ETF has performed poorly, down 2.52%.  All of these issues are exactly why you want to buy shares of this ETF now.  Investors know it is only a matter of time before there is Quantative Easing in Europe and they play funny money like we did here in the states.  Equities WILL be buoyed by Q.E. in Europe in 2015.  Exit IF...Quantative Easing is still nothing but talk in the summer.

4. Set-up a Prosper account and loan the money out!  I'd individually select 20, AA (best rated) loans with a one year time frame and fund each at $25.  Here's a great review of Prosper:  CCM blog covers specific details in the Prosper Prospectus: prospercom-invest-like-bank.  Your "seasoned" return on your money would be about 5.41%.  There is a 1% service fee on the face amount of each note.  It is recommended that as an investor, you fund a minimum of 100 loans at $25 a pop to dampen loan default risk.  But, with good scrutiny within the AA loan pool, you may do alright.  After a year you can take your proceeds and continue the investing strategy.  When you reach/fund that magical amount, $2500, use the "Quick Invest" feature so you leave the loan review business altogether.  *There are investment suitability requirements.  

prosper review

5. A conventional suggestion: Buy Vanguard's Total Stock Market ETF (VTI).  Why I don't recommend it today.  Pretty much every piece of literature out there is recommending you buy a low-fee, low-turnover (passive) ETF like VTI with a 0.05% expense ratio.  Everyone says, "don't try to time the market."  So is conventional wisdom okay to follow all the time?  What about at today's stock valuations and the 5-year bull-market run?  What if the equity is up 12.59% (VTI's return) Year to Date?  With $500, I would be able to purchase 4 shares of VTI.  The equity closed at $104.51 today.  If I believe the stock market is heading even higher in 2015, then I buy.  If believe the stock market is heading for a correction, I wait and wait and possibly 5 shares instead of four.  I have more faith in a correction then in a market continuing to reach all-time highs.

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