Monday, April 30, 2012

What Would You Do With $100,000?

All of us fantasize about getting a large sum of cash and all the awesome things we would do with it.  When it comes to making the right financial decision with money it can get a bit difficult and even stressful. Sure the money can be used to buy a nice car and a vacation but if we want to preserve the money and multiply it things can get a bit overwhelming. You have to consider how big of a risk you are willing to take and where you want to place the money. Your age also has to come into consideration the older you are the less risky you may want to be.

Real Estate

Although $100,000 can not buy you a house in NYC it can put a down payment on one.  Real estate can be a way to grow the money in the long run and it can also provide a steady source of income.  A bad real estate market usually means people are more likely to rent and that gives you the property owner the upper hand.  With your new windfall of cash you can get more credit from the bank and they are more likely to give a loan to someone with plenty of cash.  Buying land can also be a nice way to invest if buying a home is not something you want right now.


You can also invest in more education not necessarily in a new degree as this can be very expensive but you can enroll in different classes.  You can take science or culinary classes and discover new passions.  The new skills learned can lead to a career change or new friends and this can make you happier. 

All of the recent uncertainty in regards to the global economy has made stocks very volatile and this can be good if you are a day trader.  If you are in it for the long term you must consider how you would handle seeing your money fluctuate violently.  To see what you are in for let us consider if you had invested $50k in 2004-06 you may have seen your money fluctuate in a $48k - $55k range but in a high volatility market you may see that $50k investment fluctuate in a $35k -$60k range.  Ask yourself if you can sleep comfortably at night seeing your $50k investment turn into $35k in a few days.  Not everyone has the stomach to handle the high volatility (^VIX) which is here to stay.  The VIX reached 80 in October 2008 in the roaring 90’s the volatility index mostly stayed in the low teens and low twenties.    
If you decide to invest 40% in stocks you should invest it in different companies at different times.  Timing is everything and by entering at different time periods you increase your possibilities of generating more money in the long term. 

One of the best ways to increase your wealth is by starting your own business there are plenty of stories of people becoming millionaires in a short period through their business.  I haven’t heard too many stories of people making it big working a 9-5 job.  This can be a great experience and although your first business may not be a success your 2nd and 3rd may be.  You can allocate as little as $5k of your $100k to start and if you have a job you can do both while your business gets off the ground.
Collecting art can also be a pretty good investment.  The Impressionist and Modern Index was up 17.01% for year end 2011.  In 2010 the Mei Moses All Art Index beat the S&P for annual returns. Investing in different genres and buying what you believe will appreciate can be a lot of fun.  If you don't want to buy art directly invest in Sotheby's (BID) it has gone up in value since the start of the year. 
Most people don’t consider trading currencies as a way to spend/invest a $100,000 windfall.  Trading currencies may not be for everyone but it doesn’t take much money to start you can trade comfortably with $1k -$5k.   It is a short term investment currencies should not be held for the long term the high leverage and high fluctuation make for some fast gains or losses.   The educational value is what is most important once you get into the game you will see the world in a different way.  The yuan reached an 18 year high in February 2012 at 6.2885 yet it is still weak enough to give China an unfair advantage in trade according to president Obama.

Finally I like the use of a CD as a way to park your money while you decide where to allocate it.  You don't have to have an answer right away and you don't have to make a decision right away.
Sample $100k Breakdown:

Art 10k, Currencies 5k, Business 10k, Stocks 40k, Education 10k, CD 25k or 100k in real estate

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