General Question

Mtl_zack's avatar

What is the best way to gain interst on a large sum of money right now?

Asked by Mtl_zack (6738 points ) January 12th, 2009

I have a huge sum of money to invest. I’ve looked at GICs, savings accounts, Federal Bonds, T-Bills, Provincial Bonds, etc… None of the interest rates satisfy me. I want to invest the money long term, and am not afraid of losing access to my money. I don’t wanna play around in the stock market, unless it’s a sure thing (which it almost never is). By the way, the interest rates I’m not satisfied with are around 0.5%-1.85%. I really would like something from 2%-3% or higher. And I live in Canada.

Will interest rates get better after Obama’s inauguration? Are low interest rates just a product (or lack thereof) of the recession in the states? How does this effect me, a Canadian (Quebec, specifically)?

Also, I’ve put a lot of thought into a continuous savings plan, but I’m not completely sold on it. There has to be some sort of catch. It seems too easy.

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19 Answers

Mtl_zack's avatar

Oh, and I have to invest it in the next couple of weeks.

La_chica_gomela's avatar

Vanguard (or other) S&P 500 Index Fund, and don’t even think about touching that money for at least 15 years. You’re set. It’s made an average of 10% since its inception. You won’t find a better return with the same or lower risk.

It’s an awesome time to buy if you can swing it.

funkdaddy's avatar

If you’re talking long term (10 years+), there are few things that are going to beat the stock market that are hands off. Consider the stock market as a whole averages out to something like 10–12% annual gains over time, compare that to the rates you’re finding.

You’ve probably heard the phrase “buy low sell high”, right now everything is low, well just about everything. Your money buys more shares, if you have money, this is a good time to invest.

I guess I just wanted to make sure you haven’t taken that option out just because of the recent downturn. Everyone has a certain tolerance to risk, and needs to be comfortable with their investments, but there’s a reason “sure things” don’t make a big return…

The fine print. I’m not a financial planner, but I played one on the phone for a couple years

finer print, La Chica beat me to it while I was worrying about disclaimers ;)

Mtl_zack's avatar

@La_chica_gomela I’d like to find more information on that. What do I search, and who offers the best index funds?

@funkdaddy It’s not that I don’t like the returns on the stock market, it’s just that it’s not as secure. I could invest in a wind energy company that neglects the shareholders and can fold (achem WND achem). I know of all the markets not to invest in (computers, phones, insurance, travel, etc…) but it seems like almost everything is off limits risk wise. I’d rather something that I’m very sure that I’ll get at least my principal back.

JoeyDesignsStuff's avatar

My dad sank a good chunk into stocks last year, when stuff was starting to get bad. It’s common knowledge that the market evens itself out and ultimately improves over time, but I didn’t expect any positive returns for at least six months to a year. He’s already well over where he started. Pretty heavy into GM & Ford, interestingly.

I’ve always been advised to stick with mutual funds for long-term assurance, but I think funkdaddy’s onto something with the stock market.

ben's avatar

FWIW, you still can get 4%, at least from a US Bank: www.dollarsavingsdirect.com

funkdaddy's avatar

some terms and definitions real quick so we’re all talking the same things – these are just from memory to try to keep it in plain speak so excuse any minor oversights

S&P 500 – a group of 500 (mostly US) publicly traded and commonly held (meaning a lot of people are invested in them) large companies, picked by a committee and generally used as a broad representation of how US businesses are doing with regards to their publicly traded stock (think of a huge company, and it’s probably in there)

index – a way to track the value of a set group of investments, using a set formula, so the actual number is really only useful when comparing it against the same index historically… most of the numbers the news shows you to give a feel for how the market is doing are indexes

mutual funds – are investments where you hold a piece (where the term “share” comes in) of a pooled group of assets managed by a company… managed here just means they have some discretion as to how the money from the investors (you) is actually allocated. Mutual funds usually set some sort of guideline as to the general type of investments they’ll be putting money into… for example you might see a mutual fund only investing in companies of a certain size or industry… generally they are a mix of stocks, bonds, and some interest bearing component…

A simpler explanation is you, and a lot of other people, pool your funds and hand them to an educated person/company who’s job is to make you all money following a certain set of guidelines for what he/she can invest in, if you make money, you all share in it, if you don’t, you all share in that too

To bring it all together -
So the S&P 500 index fund is a mutual fund set up by a company (Vanguard for example in the fund mentioned by La Chica) that invests in the 500 companies that make up the S&P 500. This would very much make you invested in the stock market.

You can do something similar with something commonly called “spiders” which are marketed as a way to trade all the companies of the S&P 500 just like you would an individual stock… they may be worth looking into your interested in that as well, sometimes they are easier/cheaper to get into and out of (buy and sell) than a mutual fund, but are invested by a set formula rather than a person…
(stock symbol is SPDR which is where the name comes from, at one time it was the most commonly traded stock, but I don’t keep up anymore)

There are also mutual funds created with the intent of being very safe and paying out the highest percentage they can while being very safe. Although, as all those investment house commercials say in the fine print, there’s risk with any investment… it’s been a while, but it seemed several of these paid out ~5%, this may have changed.

If you have a little time on your hands, I’d say do some research and then go in to talk to an advisor at an investment house. Let them know your situation, how much you have to invest, and what time frame you’re looking at (be realistic)... keep in mind these are sales guys/gals, and they may try to sell you something, but they also do this every day and study it intently. If you feel like they aren’t listening or you’re uncomfortable, get out of there. Also, don’t plan on giving them any money that day anyway, but let them know you’re looking to invest in the next two weeks or so. It’s easier to get in, get information and ideas, and get out if they’re not asking you for a check or account information.

Also, a quick note on time frame. If I remember right, you were looking at colleges and can drink a beer in Canada, so you’re 18? At some point in the next 10–15 years, you’re probably going to need cash, hopefully it’s to buy a house, maybe it’s to buy a car, or a ring, or a couch. Hopefully a house. But you’re going to want/need that money. With whatever investment you choose, make sure you can get at the money if you need to without huge penalties or fees.

I’m pushing into @dalepetrie territory here, so I’m gonna leave it at that. Good luck with whatever you choose.

AlfredaPrufrock's avatar

You might want to check out www.motleyfool.com. Lots of good investment education advice on there, as well as tips and trends.

Snoopy's avatar

W/out repeating some of what has been said….let me add a couple of thoughts….

I am not clear why something definitive has to be done w/in two weeks…...? I would encourage you to take possession of the money and “park it” in a savings account. Check out www.ingdirect.com for their current rates, as an example of a place that has rates between 2–3%.

Commonly held belief is that you need to have your investment exceeding that 2–3% range to keep up w/ inflation….

I am hoping that your parents/relatives will be helping you guide your decisions….? I would encourage you all to get a referral from someone you trust to a reputable financial planner. They will be able to guide you to reasonable investments based on the amount, your age and your risk tolerance.

Any investment into any type of stock market based entity will have a certain amount of risk. If there wasn’t we would all be filthy rich.

Mtl_zack's avatar

I have a very good go-to person who works at the bank. She’s an old family friend, but I know to be wary of sales pitches. I trust her, and her advice. She has worked with me before and knows my risk tolerance. I have an appointment with her later today.

@funkdaddy Thanks for the great advice! I didn’t even realize that in 15 years I might be married and have a need for a house.

@snoopy One of the first things I learned about banking is that when you get a government check, cash it ASAP. My bank doesn’t offer the best savings accounts, and the fees are pretty high, especially if you close the account or dip under the minimum before 90 days.

kfingerman's avatar

I agree with @snoopy. Park it in savings for a minute and catch your breath. If you’re coming into a bunch of money for whatever reason there’s no need to jump now. If you’re young enough to have a long time horizon, there’s also no need to be investing super-safe right now. Yes it’s bad, may get worse, but that also means that it’ll likely get a lot better and 10 years from now, when the markets are back where they were, you’ll be pissed you put a “huge sum” in a CD. That said, you’ll also have some risk for short-term loss and just have to know that you are going to ride it out. The best advice in investing is diversification and in this market, it’s worth having more risk rather than less if you can stomach it.

If you indeed have a lot of money to throw around ($100K or more?), you should look into finding a professional to do this for you. They’ll charge you maybe 1% of everything you have with them, but they’ll beat what you could do alone by more than that. They should also be responsive to your risk tolerance and will help you plan your financial future. If you want to get into something more than one big chunk in some ultra safe and low-yield investment, this would be a good move. If you do want a lot of your money to be very safe, it makes sense to only give an adviser the amount you want to “play” with so that your fee with them stays low.

gooch's avatar

I would buy gold

Mtl_zack's avatar

UPDATE: I went to the bank today to see an advisor. I didn’t have the best day, and I was a bit grumpy. We were talking, but not on the same page. She thought we were talking about GICs and I thought I was talking about savings accounts. I was really confused, and then she called in her co-worker who specializes in something (I don’t even know, I’m so confused) which further complicates the matter. Being an old family friend, my advisor sensed by anxiety and we made another appointment for next week. I didn’t wanna do anything rash, so I just left and am gonna start over next week.

Snoopy's avatar

@Mtl_zack Good plan.

I still would suggest, the savings account idea. At least as a temporary fix. Why rush a decision?

La_chica_gomela's avatar

@Mtl_zack , you asked where you could learn more. Funkdaddy’s long post w/ definitions and stuff is a very small step. It’s all correct and helpful information, but what you need to know could never be summarized in one fluther post, or even in one or two meetings with an advisor. You need a book. At least one. One book is a good start. I’m no expert on the gargantuan plethora of books that are on the market right now, but I’d recommend one of these:

http://www.amazon.com/Suze-Ormans-2009-Action-Plan/dp/0385530935/ref=pd_ts_b_1?ie=UTF8&s=books

http://www.amazon.com/Total-Money-Makeover-Financial-Fitness/dp/0785289089/ref=pd_ts_b_4?ie=UTF8&s=books

http://www.amazon.com/Rich-Dad-Poor-Money-That-Middle/dp/0446677450/ref=pd_ts_b_5?ie=UTF8&s=books

I haven’t read the first two, but I’m familiar with the philosophies of the authors. They’re all tried and true advice that millions of people rely on. No fancy get-rich-quick gimmicks. Just sound advice.

Then they’re also Stocks for the Long Run that I had to suffer through for a class. It’s all very important information, but it’s incredibly dry and it makes almost no attempt to relate the information to how the individual taking control of their own finances will use it.

timothykinney's avatar

Single Best Investment is a good book to look at if you’re interested in long term returns, which it sounds like you are.

Sooner_Coolkat's avatar

You can download Suze Ormans 2009 Action Plan for free until midnight on Thursday.

http://www.oprah.com/article/money/personalfinance/pkgyourmoney/20081119_tows_bookdownload

Jeruba's avatar

@Mtl_zack, four months later now, what did you decide to do?

Mtl_zack's avatar

It turns out that I a few weeks later I was checking the websites for Israel Bonds and there was a 4% 5 year bond. I wanted to diversify my investments and invest them differently, but I just stuck it all in there because there was nothing else. But 4% at that time was amazing, just the 5 years is the downside.

Thanks for the advice flutherites! :)

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