You’ve saved up some money, and now the big question looms: where do you put it?
That’s a similar boat I’m in at the moment.
I’m all for the long haul when it comes to investing, but I also like to take a peek at what’s happening around me right now and consider my options.
Every year, around October or November, I pull up a chair and dive into my financial figures to think about the year ahead.
This time (and for the sake of simplicity), it's about how I’ll invest my next $10,000.
I don't exactly have $10,000 ready to go this minute, but as I commit to adding to my investment portfolio each month those contributions will add up to the amount at some stage in the future.
So really, I'm planning for where the next $10,000 go in this exercise.
The aim with the money is clear: growth.
I'm not looking to retire anytime soon, so I want it to multiply what I have in a way I feel comfortable with.
I feel the best two ways to grow wealth is either invest or build a business.
Normally I purely look at how I will invest my money in the stock market, like working out if I want to pick a new stock or two, focus on some ETFs or a bit of both.
This time though I'm looking at it from a higher level.
I'm looking at it from which category of asset I should invest in, rather than what selection within that asset I decide on.
If I was trying to be more sophisticated, I would talk about this being the concept of “tactical asset allocation”.
Looking across asset categories rather than the individual selections within that asset (like picking stocks).
Here’s a look at where I’m thinking of putting my next $10,000:
- In the offset account
- Stock Market via ETFs
- Building Business (Dad Investor)
Let's break each of these down and see why I think they make sense
Offset Account
An offset account is a type of account that's linked directly to your mortgage.
The money you have in sitting in this account lowers the amount of your mortgage that's subject to interest.
So, if you have a mortgage of $500,000 and an offset account with $10,000, only $490,000 of your mortgage is going to accrue interest.
It's like a savings account but instead of collecting money each month in interest, you get interest payments taken off your mortgage payments.
And generally your home loan rate is going to be more than what you can get in a savings account (plus the gains are tax free).
Now, my current mortgage rate is 6% so putting my money in the offset account is like getting a guaranteed 6% return on that money.
Here's how it works: if I have the $10,000 in the offset account with a mortgage of $500k at 6%, your bank takes off the interest that $10k would normally accrue – which at 6% is $600 a year.
It's straightforward— I save exactly 6% on whatever amount is in the offset account, and these savings are tax-free because Im not collecting an income or money but having it shaved off so that more money is going to paying off my home.
In fact if I do the calculations of how I would compare a tax free investment like this versus a taxable one, I'd need to make nearly 9% in something like an ETF or stock for it to be more of a benefit than the offset account.
And even then, the stock market has no guarantees.
In uncertain times or when interest rates are high, the offset account is a reliable choice to effectively “earn” a 6% return by reducing my mortgage interest, without having to venture into more unpredictable investments.
Stock Market via ETFs
Now, with the stock market, I’ve already found an ETF I like.
The big decision isn’t about picking a different stock or options there, it’s about whether I keep going into this option.
All through 2023 I committed my investing money to my ETF of choice.
Investing again here could lead to good returns, but it’s not guaranteed and also means having less cash on hand if I need it for something else.
It's a bit of a balancing act. I have to think about how comfortable I am with having less ready cash in exchange for the potential of growing my money in the stock market.
Investing in ETFs gives a chance for growth as the market grows.
But I also know that a 6% guaranteed return via the offset option is a very appealing option.
My favorite ETF has shown promising returns in the past.
However, the stock market can be unpredictable.
I guess it comes to how much growth I want.
Building Business (DadInvestor)
Now here is a more unique option that is appealing but also a massive unknown.
Investing in DadInvestor means putting money into my own business.
A business that I currently work on part time and am quite happy with the progress of it.
A big caveat of investing in this is that there is zero guarantee of any returns and it's the most unpredictable – but could also blow sky high.
It’s all on me to make smart choices to grow the business. If I decide to put some of my $10,000 here, it’s a commitment to work on the business.
It could lead to more income in the future, but it’s not guaranteed.
It’s about growing the brand, reaching more people, and offering more value.
Putting money into DadInvestor is like investing in myself.
There’s potential to grow the money by expanding the business.
It’s a bit more hands-on and has a different set of risks and rewards compared to other options.
For instance, I could use the money to improve the website, create new content, or run marketing campaigns.
While it requires effort and has its own set of risks, the potential returns could be substantial as it might attract more visitors, generate more sales and grow the community around DadInvestor.
What should I choose?
Each option has its own set of considerations.
- The offset account is the safe bet with guaranteed returns.
- Investing in DadInvestor could potentially lead to more income but requires a lot of effort and smart decisions.
- And the stock market is about balancing the desire for growth with the comfort of having cash ready for other needs.
It’s all about weighing these factors and deciding which mix works best for the goal of growing that $10,000 smartly.
I also need to remember while I do plan to commit to a plan for the next period of time, the way I invest (via monthly contributions) means the taps can be turned on and off at any time.
Practical Tips
When it comes to making decisions on where to put your money, it's all about looking at the big picture while also keeping an eye on the here and now. Here are some practical steps I follow:
- Annual Financial Review: Every year around October or November, it’s a ritual to review my financial standing, evaluating how my investments have fared and what the economic climate looks like.
- Research and Understanding: I stay updated with the current market conditions, interest rates, and any other factors that could affect our money. Knowledge is power when it comes to making informed decisions.
- Diversification: Don’t put all your eggs in one basket. Diversifying can help spread out the risk and take advantage of different growth opportunities.
- Flexibility: Be open to tweaking your strategy. As a long-term investor, it’s essential to adapt to the current situation. Sometimes that means waiting for the right moment or adjusting where your money goes.
- Invest in What You Know: Whether it's your own business or a particular ETF, having a solid understanding of where your money is going can lead to better decisions.
That's my process. It's not a scientific approach to this but a rythym or system I've found that works,
Along the way I take plenty of notes and use a bit of patience to take my time and not rush into any decision.
So what am I deciding to do with my investing?
I’ve decided to nestle my investing money into my offset account, at least for the next few months.
With the interest rates riding high, parking my funds here provides a guaranteed return, which is a comforting thought.
While the allure of investing in my favourite ETF or injecting funds into DadInvestor is strong, the offset account offers a two fold advantage.
Firstly, it gives my money a chance to ‘earn’ through the saved interest, and secondly, it stands ready for action, offering immediate liquidity whenever I decide to pivot.
Whether the winds guide me towards the stock market or towards bolstering DadInvestor, the funds in the offset account are not locked away but ready to march at a moment’s notice while earning a decent return.
This approach carves out some financial calm amidst the dynamic landscape of investment options, allowing me to reassess and make informed decisions without feeling rushed.
Plus, the flexibility to swiftly switch gears and channel the funds where they are needed most, be it back into my business or into the stock market, is a prudent way to keep my options wide open while ensuring the money is never lying dormant.
In close
Investing is more than just a numbers game.
It's about making smart, informed decisions that align with both your current circumstances and long-term goals.
As I think about where my money is invested, it's really the blend of an annual review, understanding the markets, and being ready to adapt is what gears me up for making the most out of every dollar.
Maybe you're in the same boat right now.
Thinking where should I put my $10,000?
Take a moment to evaluate your own financial landscape.
Where will your next chunk of savings go?
How will you optimize your strategy to meet the now and also gear up for the long run?
The empowerment lies in planning, adapting, and making informed choices.
And remember, the conversation doesn’t end here.
I’d love to hear your thoughts, strategies, or questions in the comments below.
