My previous post about Money Market Funds triggered a wave of emails (I wonder, why not comments here on this blog) from people who are trying to choose the tool (fund) for their first investment.

On average, a person who contacts me has about $3000-$5000 to invest, and can add about $100-$300 every month to that amount from their salary. I would say, it’s a typical scenario for a mid-class worker in the USA (the amounts can vary for your country). It’s a good start for your first investment; and as I stated before, you don’t need huge amount of money to build your financial empire, but it takes some time and passion, as well as patience.

It’s very difficult for me to give a recommendation to everyone without knowing your personality (careful/non-risky or aggressive investor), so I just try to give some general recommendations/examples with some numbers.

You should not just invest for the sake of it, every investment should have a purpose.

College Fund
If you are about to have a baby (or have an infant), you may think about the baby’s college time. This path is not for making money, but saving them, and saving you from the trouble of paying student loans in the future.
You will have about 18 years for your investment to mature, so if you put about $4000 in a mid-risk mutual fund (every fund portfolio shows the risk grade for you to check) with average annual return of 7%, and add $100 to that pile every month, by the time your baby will enter the college, you will have about $57000 to pay for the expanses. If your baby will stay in your state/country, that will be enough for 4 years. But, don’t help your baby to pay his/her rent, he/she needs to learn how to earn money

House Down-Payment Fund
Let say, you are going to buy a house in 2 years, and would like to increase your down-payment to get better mortgage rates. No problem. You can go aggressive, but be aware that this can bring 30% of taxes off your annual earnings (depends on your country)…
Your best friend for short-term aggressive money maker will be an Exchange-Traded Fund or ETF, it’s also called a “spider” (because it works like an internet spider or crawler). I will go more in detail explaining this type of funds in my future posts. ETFs are closely following the market trends, and if the market is going up, you can earn from 20% to 50% annually, but you need to watch the market trend and bail out in the case when the market trend goes down. Right now, ETFs are doing pretty good. If you invest $4000 with the $100 monthly additions and 25% in returns, in 2 years you’ll have about $9600 for your down payment.
If you don’t want to be aggressive, put your money in a money market fund, you will beat the inflation rate and make some additional bucks.

Retirement Fund
It’s never too late to think about your safe retirement. USA have a trend of dropping pensions and making the employees to be responsible for their senior future, but most of the countries keep paying the pensions despite the similar tax rates.
There are numerous special retirement funds designed to decrease taxes paid off the gains, but you will end up paying taxes anyway, so I’ll just give an example for an average mid-risk mutual fund.
Let’s say, you are 30 years old, and don’t mind to wait 40 years for your retirement investment to mature. With the initial investment of $4000 and monthly additions of $100, with safe average annual 9% in returns, you can happily archive $560,000 mark in 40 years. Then, don’t cash out your investment, but keep it in the fund (it can be a money market fund to be very safe) and use only the end-year return as your salary. Your new salary will not be very high, but I doubt you will have any mortgage or loan payments at that time

Serious Money Making
If your main idea is to make a financial empire with only $4000, then I would say, try ETFs; but watch them closely, because the market is not always going up. In fact, if it goes down, buy ETFs in “short” position.
For those who are not familiar with that term, buying “short” means this:

An investor who borrows shares of stock from a broker and sells them on the open market is said to have a short position in the stock. The investor must eventually return the borrowed stock by buying it back from the open market. If the stock falls in price, the investor buys it for less than he or she sold it, thus making a profit.

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