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Where to Put an Unexpected $5,000, Part 1

This article was written by in Debt Reduction, Investing. 2 comments.


Unfortunately, I don’t have this particular “problem” at the moment. But if I had, CNN Money can provide some suggestions (43 of them) for dealing with the unexpected income.

1. Best return with no risk: Pay off your highest-interest credit card debt
2. Best 12-month return (risky): Vanguard Growth Index fund
3. Best 12-month return (riskier): 200 shares, Tech Select Sector SPDR
4. Best 12-month return (riskiest): 2,500 shares, Cygne Designs
5. Best long-term returns: T. Rowe Retirement 2045
6. Best long-term returns: T. Rowe Price funds split
7. Best long-term returns: Vanguard fund mix

Number one is not an option for me, as I only use credit cards for regular spending that can be covered when the bill is due. Thus, I never pay an interest. I’m surprised that paying off other debt isn’t mentioned anywhere in story. I still have more than $15,000 in student loan debt (from both my undergraduate studies and my master’s degree for which I didn’t always apply my reimbursements to tuition), and I think that would be one of my first choices for an unexpected $5,000.

However, if I’m not buying a house in the next few months, I will be sometime within the next few years, and I’d like to have significant cash ready for the down payment. A certificate of deposit right now could provide guaranteed returns which after tax about match the interest I pay on the student loans.

CNN Money, in their seventh answer, suggests investing the $5,000 with $1,000 in the Vanguard emerging markets ETF, $1,000 in the small-cap ETF, and and $3,000 in the total international stock index. I don’t think that’s a wise allocation. International stocks have had their run and the dollar is at or near all-time lows compared to other currencies. That makes foreign investments more expensive.

I think putting $5,000 in the market right now, with the indexes at or near record highs, is a little riskier than the article leads the readers to believe. That’s why I’ve changed my future 401(k) contributions to be a little more conservative for the time being. I’ll switch my contributions back to “normal” when prices look more like a discount. Even with the changes in my 401(k), I’m still investing in the market in other accounts, so I’m hedging my bets a little.

I’ll look at some more of CNN Money’s suggestions later, perhaps throughout the week as time permits.

Published or updated May 21, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 1 comment… read it below or add one }

avatar Jonathan R

I think I would be applying that 5k to my student loans since I have a 6.25% interest rate on one of the loans :/

If I didnt have the student loans, I would put it in some companies that pay pretty good dividends and a history of increasing their dividends… such as Altria(MO), Washington Mutual(WM), or Southern Company(SO).

Disclosure: I do not own any of the above listed companies at the moment, but I look foward to in the future :D

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