Best way to invest $40,000

[Jumpkix]

40K? Safest bet with highest return potential and least amount of work is mutual funds. Get 8-10% back and jut keep it in until you want something else. Flipping houses or having tenants is a lot of work with a lot of risk but has a much higher potential rate of return. Whoever said pay off your 4Runner at 1.9% must be joking. Hmmm, pay off 1.9% loan or make 10% with that same amount of money....

That 10% is not a guaranteed return. Pay off your 4Runner and stop giving your monies to the freaking bank!!!

Live like no one else, baby. Debt free here and lovin' it! :guitar3:

 

[Greg_Canada]

Why is that a joke? I don't think you understand what the word "debt" means. The way debt is supposed to work is, you pay it back. Except the entire banking industry is dedicated to taking money out of your pocket by convincing you that it's better not to pay that debt off. There's a whole subsection of our Western society that lives parasitically off the backs of the working man by fooling that man into thinking he needs a $40,000 truck when a $10,000 truck will do, and that he needs to go into debt to acquire that truck instead of waiting and paying cash for it, then fooling him into thinking that making interest payments is better than not making interest payments.

Hell yes, pay it off. Debt is evil.

Then you have no idea what leveraging money means.
If you can make 8% on money that is borrowed at 1.9%, you are turning a huge profit. He is basically getting toyota to make him money.
Now if the rate was 7-8%, i would pay it off.

 

[1engineer]

Why is that a joke? I don't think you understand what the word "debt" means. The way debt is supposed to work is, you pay it back. Except the entire banking industry is dedicated to taking money out of your pocket by convincing you that it's better not to pay that debt off. There's a whole subsection of our Western society that lives parasitically off the backs of the working man by fooling that man into thinking he needs a $40,000 truck when a $10,000 truck will do, and that he needs to go into debt to acquire that truck instead of waiting and paying cash for it, then fooling him into thinking that making interest payments is better than not making interest payments.

Hell yes, pay it off. Debt is evil.

I won't get into a big long discussion about this topic with you but if said "Kid, for the same amount of work I can pay you $190.00, or I can pay you $800.00. Which do you want?" The numbers are rough but that is what you are saying (1.9% on 10K or 8% return on 10K) by paying off that vehicle.

Debt, like ANYTHING ELSE in our world, is OK in some cases. In other cases, not so good. Doughnuts are bad if you eat too many but pretty good if you only eat one or two lol. I get that you pay cash and save up and that's fine. There are advantages to that. There are also disadvantages too like the example I listed above.

I do agree with you that too many people get way too deep in debt though.

 

[JB.]

General comment:

I think the attitude about leveraging money has undergone a little change since 2008. Maybe less so in Canada.

For the OP, it's a matter of temperament and confidence in forecasting the future financial landscape (but don't confuse confidence with ability). Paying off the debt could be considered an investment in certainty and simplicity.

I bought my 4runner with 1.9% financing even though I had planned to pay cash. It worked out well, too.These days, I would avoid the debt over the lure of a little return.

Dirty Harry may have the best advice. "Are you feeling lucky"?

 

[eddiebx]

I won't get into a big long discussion about this topic with you but if said "Kid, for the same amount of work I can pay you $190.00, or I can pay you $800.00. Which do you want?" The numbers are rough but that is what you are saying (1.9% on 10K or 8% return on 10K) by paying off that vehicle.

Debt, like ANYTHING ELSE in our world, is OK in some cases. In other cases, not so good. Doughnuts are bad if you eat too many but pretty good if you only eat one or two lol. I get that you pay cash and save up and that's fine. There are advantages to that. There are also disadvantages too like the example I listed above.

I do agree with you that too many people get way too deep in debt though.

Actually, donuts are pretty bad for you any way you slice it, bro.

 

[Steamfitter]

Hmmm well I could probably pay off the t4r and have another 40g clear in less than a year. Otoh, I could potentially make 10k by financing for 5 yrs and investing the cash, if I get a consistent return (ie no major financial blips over the next 5 years. Somehow I expect another war/recession in the next 5 years so maybe I should just pay it off first...

 

[EasylyConfused]

It's unlikely you will see rates stay as low as 1.9% in the future. If I were you there is no way I would be paying off that loan right now if it's your only debt. You still have a good debt to equity ratio overall. That being said l wouldn't go and invest everything in something extremely high risk such as real estate right now either. I have seen way too many mortgage companies go into receivership because they made a mistake in the real estate market. If you do decide to go into real estate, you need to talk to a lawyer and financial adviser to consider things such as investing through through a corporation. Your mortgage interest would be deductible within the company against your earnings, and if things go south, your maximum exposure would be your investment (assuming you don't sign any personal guarantees). Make sure you talk to the right people.

Personally if I were you, I would talk to a good financial adviser, and invest in the open market with a combination of equities and mutual funds. I would make sure I found someone that truly understands taxes, and could help design an investment strategy isn't just interested in fattening their commission.

Not knowing you or anything about you, it is impossible to give good investment advice however If you are young, and could live with the risk of losing all the money for the chance of a high return it might make sense to find a high growth high risk investment and mitigate your risk by diversifying your portfolio. If you are nearing retirement, or might need the money in the near future, then It would make more sense to look at investing in a lower growth and lower risk portfolio.

Once you've decided your investment strategy you need to look at your tax position, If you have unused RRSP room this might be a good opportunity to invest some tax free money, or you could use your TFSA to invest in some equities with high dividend yield. There are huge tax savings to be had if you tax plan. Spend a little money and hire a good adviser. To take financial advice off a forum would not be my recommendation.

For the record, I'm not a personal financial planner, so take my advice for what you paid for it and good luck

 

[slapdappy]

rental property. two family house. asset appreciation. steady income. initially the rent will service the debt. you can farm out management to real estate management company. gradually rent will exceed debt and costs so you will have an appreciating asset which is self financing and producing an ever increasing income. It is a good hedge against inflation because rents tend to increase at the same or greater rate as the rate of inflation. eventually you will straight up own it. you will have a debt free asset.
Downside? burden of ownership, which includes foreseeable and unexpected costs/repairs and the burden of being a landlord. Smart move is finding a good tenant and charging a slightly below market rate.

 

[BrianSD_42]

Managing tenants can be an utter PITA.

Why not pay off the 4Runner, and then take the money you would be plowing into car and interest payments and invest that in a Roth? I'd think you'd be ahead in the long run.

Since you can only invest < $4.5K (around this amount) per year in a ROTH-IRA & OP has $40K this comment doesn't make sense to me.

Perhaps you meant something else but I just don't get it. Also interest rates are at all time lows on everything you can invest in with that roth so you would be getting a 2% return at the most.


To me buying a $250k property with $40k down and renting it out seems like the way to go. If I had cash on hand that is what I would do.

 

[JayceeP]

Why is that a joke? I don't think you understand what the word "debt" means. The way debt is supposed to work is, you pay it back. Except the entire banking industry is dedicated to taking money out of your pocket by convincing you that it's better not to pay that debt off. There's a whole subsection of our Western society that lives parasitically off the backs of the working man by fooling that man into thinking he needs a $40,000 truck when a $10,000 truck will do, and that he needs to go into debt to acquire that truck instead of waiting and paying cash for it, then fooling him into thinking that making interest payments is better than not making interest payments.

Hell yes, pay it off. Debt is evil.

I see where you are coming from but I wouldnt say debt is evil. Debt can be good for many reasons. Debt creates prosperity and all those who have wealth, have used some form of debt to build wealth most of the time. Debt is stupid if you're going to borrow 20 grand so you can travel or buy crap. Owing on a car isn't a bad thing- the loan is backed by an asset whereas 20k in loans for trips around the world are backed by memories and photographs. A little bit different. It's hardly worth saving to buy a vehicle just to let money rot in a savings account. Interest rates for savings accounts are paying less than inflation, even in Canada. Debt is good when used responsibly and I believe the only thing you should borrow for is a house, a vehicle, and an investment.

Ok so I have an extra $40K and I would like to invest it. My t4r is my only debt. I was thinking about buying an investment property and having it rented out (my city is growing rapidly, but houses in a good area are already very expensive), or just investing it long term into dividend-paying blue chip stocks to get a retirement fund going (in case I live that long haha...) I would start a business or something but I don't think I have it in me. Any advice?

If you are prepared to leverage to buy real estate maybe you should consider leveraging to invest in blue chip dividend stocks. On reduced margin you could go out and buy $133,333.33 worth of dividend stocks eligible for reduced margin I.e. bank stocks (you put down 30%, the brokerage loans you up to 70% of the purchase price- read up on margin calls). Will pay you a tax efficient 4-5% dividend and you may also be able to deduct the interest on your margin loan against your income. Food for thought. All I know is your stocks won't be calling you in the middle of the night because the tap broke, or the pipes froze. Your dividends, on the other hand, will arrive in your account quarterly at an annual rate of 4-5%. Just an idea- this is not advice. Talk to a professional or do some research.

 

[Jeff Kleb]

40K, Debt, etc.


I get the whole thing about "leveraging" money and the great deal you have with a 1.9% loan....but I am "old school" and learned my lesson about debt back when I was younger. Were I blessed with an extra 40k, I would pay off ALL DEBT (although I really don't have any right now outside of my house) immediately - just for piece of mind.

Once that is done, I would suggest taking ten percent of what is left after paying off all of your debt (car, charge cards, installments, etc.) and just blowing it on something mindless (vacation, new stereo system, big-screen TV, single-malt Scotch, four-day cruise, a "drunken crusade" or bar crawl with some friends in a rented limo, etc., etc., etc.). Get the crazy shat out of your system quickly! After your head stops pounding and you smile about what you did with the strippers and the awesome lap dances at Club Chez Elite the night before, take some Alka-Seltzer and eat a big breakfast.

Gather your remaining funds and set aside another ten percent as "no touch" money that you keep in a very liquid form (cash, savings account, money market, etc.) that you can access quickly if necessary. Use that in the event of something unexpected that you will encounter when you are least ready for it.

Take the other eighty percent of your stash and invest in mutual funds, precious metals, stocks and perhaps some other venue. If you have a company-match 401{k} pension at work, see if you can up your contribution to the maximum level. That is like "free money" and it adds up over the years because of dollar-cost averaging and compounding. In the USA, I would suggest "investing" in some high-quality firearms and several boxes of ammunition; but that might not be feasible or even legal in Canada.

Guns seldom depreciate and ammunition never goes bad. Lord forbid you'd ever NEED to defend your home or your family; but it is better to have a means of protection and not need it, than to need it and not have it!


P.S. Very interesting and intelligent replies from everyone here!! :snacker:

 

[philsey]

I just read this thread, and find all this mostly-well-intended financial advice interesting.

Some may be good, some not so much because no one posting knows anything about you except you have $40k and a low interest car loan.

Good on ya for having the sense to act wisely, but proper investment advice begins with a professional knowing a shit-ton more about your age, marital status, home ownership, life insurance, retirement funding, personal goals, family responsibilities, job status, income, yada yada yada .... none of which is present, rendering lots of well-intended advice guesswork.

As to RE, I've been a landord for >30 years. It CAN BE a wise investment, but it can also be a big cluster-f. (I had a renter destroy a duplex (fire) and it was out of operation for a YEAR. A year of dealing with contractors, city inspectors, etc etc, and no rent.)

For a start-up like you, you really, really should be a competent DIY'er, or your profits will go to tradespeople and property managers. Unacceptable IMO. Landlording is not for everyone, is NOT easy, will be very demanding at times, and requires a business head. OTOH, I have made good money at it.

 

[JohnsD90]

^ agree. IF you have the cash on hand; take the amount of the remaining balance of the loan, and put it instead in a mutual fund making 10%, the money generated would essentially pay for the interest owed on the auto loan. 10% earned, less 1.9% owed, gives you an overall net gain of 8.1%, while also paying off your T4. I would take that deal any day

I was gonna say something like this, but i couldn't word it right.

 

[philsey]

Number one is pay off the Runner. Become debt free first.

I submit that before you succumb to the "debt-free" mantra you have a clear understanding of credit scoring, what yours is, how it works, and why it is likely to be important to you. Managed debt, and repayment, are most likely beneficial to a younger person.

Neither being indebted nor debt free is wrong, just understand it well. I'm debt-free, but I should be, as my circumstances are probably polar-opposite of yours.

 

[Lineman]

Debt free here. Zero.. Pay cash for everything. Been on Dave Ramsey program for years now. First is become debt free. Having a zero percent or even 1.9 percent loan is debt. Plain and simple. Once that vehicle is truly paid for you will think twice about selling it. Drive it till the wheels fall off then pay cash for the 6th or 7th gen Runner.

Max retirement out, college fund, 6 month pure liquid cash available then start that business you want. Me and the Wife have no real credit score due to no debt. We don't need a credit score.. We pay cash for house, cars, everything. It's so very liberating.

 

[Steamfitter]

Hmm... I think I'm gonna go the dividend stocks route(I like the big Canadian banks and Exxon-Mobil in particular). Some more info: I'm 30/single/no kids with a $200k condo paid off, so I have lower living expenses. The only variable is how much I'll be working. I might go back to college and do an engineering diploma so that will mean I can only work in the summers for 2 years. It's tempting to just pay off the t4r too, even at 1.9%. I've talked to a financial advisor (non-commissioned), and didn't find her very helpful.

 

[MtnT4R]

Shoot man, sounds like you've got life figured out :cheers:

Its interesting to see the split between the leveraged/cash people weighing in on this. Leveraging can and usually will make you more money in the long run, but nothing will help you sleep better at night than cash in the bank.

+1 on pursuing more education, in your situation. That's a pretty solid investment, even if most of the lower level classes are a complete waste of time...

Lineman, not to begrudge your position in life at all, because thats where I want to be someday; its just funny to see people buy real estate here; the buyer wants to finance just for whatever reason(never makes sense to me, but usually liquidity issues), and they cant get a loan because they have no income and no credit! They are millionaires many times over, but the banks wont touch them because they fall so far outside their acceptable guidelines for the national norm, which must be people in debt up to their eyeballs but that still have an income stream that can "manage" the monthly payments.

 

[Thai]

Hmm... I think I'm gonna go the dividend stocks route(I like the big Canadian banks and Exxon-Mobil in particular). Some more info: I'm 30/single/no kids with a $200k condo paid off, so I have lower living expenses. The only variable is how much I'll be working. I might go back to college and do an engineering diploma so that will mean I can only work in the summers for 2 years. It's tempting to just pay off the t4r too, even at 1.9%. I've talked to a financial advisor (non-commissioned), and didn't find her very helpful.

Wow, good job. I was gonna tell you to buy 40,000 lottery tickets, but i guess that the other members' advices are more financially sound.

 

[Atlanta_man]

This is no time to be buying stocks or bonds except for some very special cases where you have extra insight.

Market trading volume is very low. The FED will be tapering. Inflation is already here.

(relax Thai, I read all this in a magazine somewhere)

 

[Dark Lord]

If I were going to invest my money it would be into something physical definitely. Call me a conspiracy theorist if you want, but I believe in spending the money while it's still worth anything. What's $40K in investments going to do for you if the dollar fails? I say pay your debt, then spend it on something nice, you only live once. I don't think $40K is enough to really put into a serious investment, but I'm not a financial adviser either.