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You’ve acquired $5,000 and now you’re wondering what to do with it. Could you double it? Invest in real estate? Take a risk in the stock market? Turns out you can do all 3 and more.
What's in this guide?
- How to build a $5,000 investment portfolio
- Before you invest $5,000
- Invest in a group RRSP with employer contributions
- Investments that can be held in an RRSP
- Invest in peer-to-peer lending
- Invest with a robo-advisor
- Invest in ETFs
- Invest in real estate investment trusts (REITs)
- Bottom line
- Frequently asked questions
How to build a $5,000 investment portfolio
Before you build an investment portfolio, determine your goals and risk tolerance.
Guaranteed Investment Certificates (GICs) and bonds are less risky, but they also have modest returns. Stocks are known for having high risk, but they also have the highest potential returns.
Weigh the risk and reward of each investment type and consider how much you’re willing to potentially lose in hopes of higher returns.
Here’s what a $5,000 portfolio might look like:
|GICs and bonds||15% to 50%|
|Stocks, ETFs and mutual funds||50% to 75%|
|Real estate and alternative investments||0% to 25%|
Before you invest $5,000
Before you invest $5,000, consider the following savings options:
- Emergency fund. Keep 3-6 months of expenses in a high-yield savings account so you have immediate access when you need it.
- Vacation fund. Start a vacation fund so you always have some money on hand for an adventure. Let it earn interest with a high-yield savings account.
- Debt-payoff fund. If you have high-interest debt, pay it off before you tackle any investing methods. It’s difficult to grow your wealth when an APR of 10% or higher is digging you into deeper debt.
Invest in a group RRSP with employer contributions
If your employer offers a dollar-for-dollar match, you’ll want to raise your contribution percentage to invest in your Registered Retirement Savings Plan (RRSP). This decreases your take-home pay, but you can use the $5,000 to supplement the missing money from your paycheque.
- Free money. Regardless of how much your employer matches, this is free retirement money.
- Tax-deferred. Contributions are made with pretax dollars, which lowers your tax bill for the year. But you’ll pay taxes in retirement when you withdraw funds.
- Can’t use funds until retirement. You’ll pay a penalty if you withdraw RRSP funds before you’re 71.
- Limited investment options. RRSP plans use simple investment vehicles like stocks, bonds and mutual funds.
- Can’t invest funds directly. RRSP contributions are deducted straight from your salary, so you can’t make a one-time, lump-sum contribution.
Investments that can be held in an RRSP
RRSPs are designed to hold certain types of assets including:
- Mutual Funds
- Exchange-Traded Funds
- Guaranteed Investment Certificates
- Income Trusts
- Mortgage Loans
- Foreign Currency
- Labour-Sponsored Funds
Invest in peer-to-peer lending
Lend your money to other individuals in need through peer-to-peer (P2P) lending.
- Lucrative returns. The average investor earns between 5% and 9% interest with P2P lending.
- Steady cash flow. You’ll receive steady monthly income as the borrower repays their loan.
- You’re helping someone in need. Most P2P investors enjoy lending money to help someone who needs it more than they do.
- Risk of default. There’s a chance you could lose your money if someone defaults on their loan.
- P2P lending is new. This industry has only been around since the Great Recession, so it’s hard to tell how it will do during the next economic downturn.
- Unsecured loans. Often, borrowers don’t put up collateral for the loans, so there’s a slim chance you’ll get your money back if something happens.
Invest with a robo-advisor
A robo-advisor is an automated investment platform that makes portfolio recommendations based on a series of questions it asks about your goals, risk tolerance and timeline.
- Low fees. Robo-advisors typically have lower management fees than traditional advisors — some even as low as $0.
- Accessibility. With a robo-advisor, you can manage your account straight from your mobile device or computer.
- Maintenance-free. Many robo-advisors maintain your account through automatic tax-loss harvesting and rebalancing.
- Limited personalization. A robo-advisor makes recommendations based on algorithms and calculators, which can be somewhat generic.
- No face-to-face interactions. No matter how advanced robo-advisors get, they’ll never be a true replacement for financial advisors.
Invest in ETFs
An exchange-traded fund (ETF) is a collection of stocks, bonds and commodities that’s traded on the stock exchange as one single security.
- Diversification. ETFs are made up of a large number of stocks, which lower your overall risk.
- Commission-free options. Many brokers offer commission-free ETFs, which means you’ll keep more money in your pocket by avoiding fees.
- Easy liquidity. You can buy or sell ETFs at any time, making it easy to access funds in a pinch.
- Limited selection. ETFs are diverse in nature, but there aren’t nearly as many ETFs on the market as other investments, such as mutual funds.
- Fees. You may pay a fee each time you buy and sell depending on who your ETFs are through.
Invest in real estate investment trusts (REITs)
While you may find some real estate properties or private real estate investment trusts (REITS) looking for a $5,000 investment, you’re better off choosing publicly-traded and public non-traded REITs since they typically offer lower investment minimums.
- Good for beginners. REIT investors don’t manage any property, so it’s an easy way to get started in real estate with minimal experience.
- Low minimum deposits. Many REITs have opening deposits of less than $1,000.
- Dividend payments. Receive a regular cash flow in the form of monthly or quarterly dividends.
- Diversification. Instead of investing in a single property, REITs allow you to diversify with many different properties nationwide.
- Volatile. Most REITs are publicly traded, so their value fluctuates with the stock market.
- Less flexibility. You have less control over REITs than you would with an individual property.
- Different than direct investing. With REITs, you’re investing in real estate stock, which is different than directly investing in a property.
You’ve made your first step in planning to invest your $5,000 wisely. Once you have a plan for how to use it, compare top investment accounts until you find the perfect one for you.
Frequently asked questions
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