I am receiving $2,000 at the end of this month in one lump sum and it's cash. I've been pondering whether I

Question

should loan some of it to family members who can't pay it back or invest it but I just can't come up with any ideas of how to do that without getting ripped off. Are there any agencies out there that deal with beginners or some place I can ask advice for this?

Answer 1

You are very kind but be wise. If you are not used to having this type of lump sum - INVEST most of it.

I always tithe 10% off the top to a local church when I get unexpected sums of money. Then the other 90% is spent much more wisely.

Find a high interest bearing savings account if you don't already have one.

Diversify.

Split it into $500 sections and allocate it to 4 different typs of REAL investments. (CD's - Roth IRA - Stocks etc)

I prefer double digit returns so perhaps you'd like to visit http://www.Prosper.com

This is a place where people loan money to other people who can't get bank approved loans. You can still help others - do your own due diligence - and get a return on your investment.

FYI - Just don't drop the entire $2K in one place.

Wise Investor
http://www.GoodShephard.Free1up.com

Answer 2

The family question is a difficult one to answer because that isn't exactly finance-related. If you loan you money to a family member and know they can't pay it back, that isn't a sound financial decision, but you're doing it out of the goodness of your heart, so it might be a good decision for you personally and make you feel good and generous.

If you decide to invest it, where you put it will depend on your risk appetite, time horizons, plans for the money and your other investments or debt.

If you are in debt and it is high interest consumer debt like credit cards or car loans (not mortgage or other related), paying off your debt is most likely a good thing.

If you don't already have an emergency cash fund, you might want to put some of it in money market funds, CDs or high yield bank savings accounts (check bankrate.com). Then you can put the rest in a diversified, no-load index mutual fund. For this, I would check fidelity or vanguard for the basics on investing:

www.fidelity.com
www.vanguard.com

Good luck with your decision!

Answer 3

Before you decide what to do, read The Total Money Makeover by Dave Ramsey before the end of the month.

If you want to give the money to a family member- treat it as a gift so you don't expect to get paid back.

If you want to invest it, you need to decide first, do you have debt? Do you have an emergency fund? $1000 must be set aside prior to getting out of debt and then pay off debt. Then you can save up to 3-6 months of savings (for emergencies) and then invest for retirement and/or school.

Read the above book first, figure out where you are at and then decide what to do. He has been the "agency" that I have read on how to win with money.

Answer 4

I applaud your sentiment and wish you luck as you begin investing.

Definitely do NOT thow money away to anyone who has no intention/history of repaying you. That just reinforces their bad financial habits and makes you feel bad.

There are plenty of good places to park $2,000 with reasonable returns. Here's some ideas along with the effort involved:

1. Savings account (minimal effort): Go to your local bank branch with the check and talk to a manager. She can set up an account for you to hold the money which will at least provide a small rate of interest (2%/yr or so). This has a high degree of safety but very low return.

2. Set up a mutual fund for yourself (medium effort): Pick up a copy of Kiplinger's or Money magazine. Every other page will be an advertisement for some form of mutual fund company trying to get you to buy their fund. Check out a few web sites, then ask for an application. There are a couple of gotchas with this approach: Many funds are looking for a minimum of $3,000-$5,000 initial investment so you will not qualify (Many of these reduce their requirements if you open an IRA and commit to a monthly cash contribution). There are a couple of mutual fund companies that cater to small investors; check out Franklin Templeton. There will be a mind boggling variety of options so keep to simple types like index funds (ones that invest in a stock index) or money market (ones that look like a high interst savings account).

3. Get a broker (high effort): You could do #2 by starting an account with a brokerage firm; I don't advocate this to you since these guys really are looking for people with bigger balances than $2,000. However, since you eventually want to become one of these, you might want to explore this since a long term relationship with a broker will get you access to advice and investment types unavailable to Joe on the street.

4. Do some microinvesting: A number of avenues are developing for people to loan money to each other over the internet. Offshore, this is known as micro investing and generally involves groups of investors loaning small amounts to folks in developing countries who use the money to start businesses. In the US, I know of one site www.prosper.com that does sort of the same thing. Borrowers go on the sight and request loans; folks like you who establish accounts bid on those proposals. The winning bids pool their money to fund the loan. Most borrowers are asking for help with credit card bills or pay day loans or business expansions. The site checks each out and rates their credit worthiness. With $2,000 you could make up to 25 loans (min $50 each) and return 10%-20% per year. Of course, some of those borrowers will default and stiff you, so it's not all gravy.

5. Pay off any debts you have. If you are paying credit card balance at 20% or a student loan, pay that first and then worry about socking away the cash.

Good Luck!

Answer 5

Short term: put it in a CD (certificate of deposit) at your bank for a month, earning interest while you decide where to invest it.

Loaning to relatives is a bad option. Their debt is not yours. Conversely, their savings is not yours. Their property or purchases are not yours.

You can lump the $2K into an IRA (the yearly limit is $3K). You will need to consult a registered representative. Free at the bank if you open the IRA there, or you can open it online with any of many investment firms. (see links for Washington Mutual's online CDs & Wachovia's securities division)

Many financial advisors charge fees. If they do not charge fees for advice, then they will get a commission from your investment. (How else can they get paid for their efforts?)

Answer 6

If you loan it to friends or family members, you could go through an online site like circlelending.com. This way, there would be an official loan and you would set up specific payment arrangements so they would have to pay you back or get their credit damaged.

You could also possibly use the site below. If you refer them to that site, you could get a referral bonus as well. In addition, you can get a sign-up bonus of $25 so there would be benefits.

Answer 7

If you don't have a savings account, put it in a savings account. Call around for the best interest rate. Make sure its more than 3 percent.

If you do already have savings, consider a CD or a mutual fund. I like the T Rowe Price family of no-load mutual funds.

Answer 8

I would have to ask why you would loan money to someone knowing ahead of time that they won't pay it back?
Go to a bank and open a savings account. You will need to hang on to some of the money so you can pay taxes on it at the end of the year.

Answer 9

Pay off any debt first.
Put the money in CD until you figure out what to do with it.
Start investing in something lower risk like mutual funds first.

Answer 10

Get a CD. I did that with a money i got from school and now its safe there! i can breath again! seriously! check at your local bank..and dont lend it to family members i did that once and they never paid me, but if you want to you can give it to them as a gift so you wont get angry when they never pay you back! good luck:)