Are you unhappy with the miserly rates you are earning on your savings account? Knowing that you are part of a generation that will outlive traditional retirement savings by 10, 20 or even more years, you want to make sure your money is working for you.

How do you turn $10,000 today into $1 million in 30 years?

Without a doubt, you want a higher return than a savings account will give you. If you do not need the money within the next year, you have several options available.

#1 The Best Way to Invest $ 10,000: Savings Account

The money you need in the next year is best placed in a savings account. The return on your money will be low but you will not be subject to withdrawal penalties when you need it. You do have options for getting more than a 1% return by placing your funds in a high yield savings account. The terms vary among banks. Interest rates may increase according to the amount you deposit, so you could earn more on $10,000 than $100,000.

A fixed deposit is an option but watches the terms. If you withdraw early, you could lose any interest accrued. Fixed deposits from some Asian banks are paying a return in line with that of bonds in the 2-4% range.

#2 The Best Way to Invest $ 10,000: Certificates of Deposit (CDs)

For investments of one to five years, a CD like a savings account is insured but pays a tad higher interest rate. The longer you leave your money untouched the higher the interest rate you can earn. HSBC Hong Kong CDs under seven years are currently paying higher interest rates than government bonds. For longer than seven years, the bond interest rates are more attractive. Thus, CDs are best for medium-term investment goals. CDs are not insured by the government in all countries.

In Hong Kong, for example, CDs are not protected by the Deposit Protection Scheme in Hong Kong. So it may look like a savings account and pay interest like a savings account, but it may not be insured like a savings account.

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#3 The Best Way to Invest $ 10,000: Money Market Accounts

Money market accounts are more flexible than CDs. They pay a lower interest rate but allow up to six withdraws a year without penalties. Interest rates often rise with a higher deposit amount as the fundsupermarket fund demonstrates. Some accounts provide the opportunity to benefit as interest rates are being slowly notched up by many central banks. If you were to put a minimum deposit of $30,000 in a Citibank Singapore money market account, for example, your return would be based on the Singapore Dollar Interbank Bid Rate.

#4 The Best Way to Invest $ 10,000: Index Funds and ETFs

Index funds replicate and track the performance of major indexes such as the S&P 500. They provide unlimited upside potential depending on the level of risk you are willing to take.  Conservative investors do more than fine – they beat active investors – over the long term without taking on a lot of risk from high growth stocks. ETFs track index funds but trade on the stock exchange like shares of a company. ETFs can be a good way to gain exposure to a high growth market like China while minimizing risk and get in on some interesting sector plays. Several small-cap China ETFs are up 30-50% in 2015.

Unlike mutual funds, the stocks in ETFs are not actively traded.  The funds should be rebalanced, though, from time to time based on your risk profile. If your risk profile is 50% equities and 40% bonds and a strong performance in equities leaves you with a 70% stock allocation, you will want to sell some stocks and buy some bonds. Inevitably, a strong equities market will hit a pullback or market correction. Fees are under 1%.

Read: Difference Between Exchange Traded Funds and Mutual Funds?

#5 The Best Way to Invest $ 10,000: Mutual Funds

If you want to take on higher risk in exchange for a higher return, an actively managed mutual fund is an option. This strategy should be considered for a short time horizon. Long-term, actively managed funds underperform passive investments such as index funds or ETFs. Part of the performance disadvantage is due to the higher fees from actively managing a portfolio. Fees are in the 1 – 2% range.

 

#6 The Best Way to Invest $ 10,000: Low Fee Services

With the help of technology, it is getting harder and harder for investment advisors to charge exorbitant fees for their services. It is even difficult to hide fees. Online investing allows everyone to invest in the same fees in a transparent market. Some investment advisors still accept kickbacks in exchange for selling the investment products of their partners. Shop around and make sure the funds you are being sold are the best investment for you.

Exchange-traded funds allow investors to more actively manage their investments for a lower fee than mutual fund investing. By trading real time on an exchange, you no longer have to wait for a statement to find out if the value or fund holdings have changed. Robo-advisors are lowering fees further and adding more transparency.

If you are swimming in debt, consider paying down the debt before embarking on your new investment plan. If you are earning 3% on your $10,000 but paying double that on interest on the debt, you will not get ahead.

Related: Personal Financial Advisor: Why You Should Engage One

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2 COMMENTS

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