Smart Ways To Invest $15,000 In Mutual Funds

Investing in mutual funds is a great way to begin your wealth creation journey. With mutual funds, you can make small regular investments without feeling burdened. For instance, if you invest Rs. 15,000 per month via a Systematic Investment Plan (SIP) for 10 years, you will earn around Rs. 35-36 lakh, which is double your original investment. The longer you keep investing, the better the returns.

There are several types of mutual funds to choose from, depending on your risk profile. You can invest in Large Cap funds, Balanced funds, Mid & Small Cap funds, Flexi/Multi Cap funds, Index funds, or a combination of these.

Before investing in mutual funds, it is important to fund an emergency savings account for financial security. It is recommended to save enough to cover at least six months' worth of expenses.

Emergency funds

Savings Account:

A traditional savings account at a bank or credit union can be a safe and easily accessible place for your emergency fund. While the interest rates on savings accounts are typically low, your funds will be liquid and you can withdraw them at any time without penalty.

Money Market Account:

Money market accounts are interest-bearing accounts that combine features of both checking and savings accounts. They are considered low-risk and can provide annual percentage yields (APYs) of around 3-4%. Many money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA) up to $250,000 per account. Some accounts also come with debit card and/or check-writing privileges, giving you instant access to your funds.

High-Yield Savings Account:

High-yield savings accounts, often offered by online banks, provide higher interest rates than traditional savings accounts, typically ranging from 3-4%. Your money will be FDIC-insured, and you can usually access it through online transfers, wire transfers, or check requests. However, with online-only accounts, you won't be able to access your funds at a branch location, and some withdrawal methods may take several days.

Certificates of Deposit (CDs):

CDs can offer higher interest rates than a regular checking account, and they are also FDIC-insured up to $250,000 per account. However, the drawback is that you usually have to pay a penalty if you cash out a CD before it matures, making it less ideal for emergency funds that you may need immediate access to. One strategy to mitigate this issue is to create a CD ladder by purchasing multiple smaller CDs with different maturity dates, allowing you to access funds at regular intervals without incurring as many early withdrawal penalties.

U.S. Treasury Bills:

U.S. Treasury bills are backed by the federal government and are considered a safe investment. They have very short terms (4 weeks, 13 weeks, or 26 weeks) and tend to pay more interest than a simple savings account. You can time them to mature on a regular schedule, but keep in mind that you may need to plan ahead to liquidate them and transfer the funds to your bank account.

Money Market Mutual Funds:

Money market mutual funds invest in low-risk securities, such as government securities and certificates of deposit. They are highly liquid and low-risk compared to other types of mutual funds. However, it's important to note that money market funds are not federally insured, and while they aim to pay dividends comparable to short-term interest rates, they can lose value.

Ginnie Mae Bond Funds:

These funds are backed by the federal government as they are securitized mortgages that are federally insured. They are considered relatively safe and usually offer higher yields than savings accounts. You can access these funds through brokerages, but they may not have the same level of liquidity as a cash account, so you'll need to plan ahead to liquidate the bonds.

Tiered Emergency Fund:

This strategy involves keeping one to three months' worth of expenses in a high-yield savings account for immediate access. The rest of your emergency fund is invested in a taxable account using stocks and bonds, providing the potential for higher returns while still allowing time to liquidate assets if needed.

Remember, when investing your emergency fund, it's crucial to balance safety, liquidity, and returns. While you may want to earn higher returns, ensure that you can easily access your funds in case of an emergency.

High-yield savings accounts

If you have $15,000 to invest, one option is to put it in a high-yield savings account. This is a good option if you plan to use the money in the next few years. The best high-yield savings accounts are FDIC-insured, so your money is protected.

When choosing a high-yield savings account, look for accounts that have high-interest rates and low service charges. You also want to make sure there are no monthly fees, or that you can meet any minimum balance requirements to waive the fees.

• UFB Direct High Yield Savings: This account pays an excellent 5.25% APY. There is no monthly fee, no minimum balance requirements, and all balance tiers earn the top rate. You also get a complimentary ATM card.
• Laurel Road High Yield Savings: This account provides a competitive 5.15% APY with no monthly account fees or balance requirements. There is no minimum deposit needed to open the account.
• Varo Savings Account: This account offers an APY of 3.00%, but you can earn 5.00% on balances up to $5,000 if you meet certain requirements, such as having a Varo Bank Account and receiving direct deposits of at least $1,000 per month.
• LendingClub Bank High-Yield Savings: This account offers a strong 5.00% APY on your entire balance. There is no monthly fee, and you only need $100 to open an account.
• Bask Bank Interest Savings Account: With the Bask Bank Interest Savings Account, you can earn 5.10% APY with no monthly account fees. There is no minimum balance or deposit requirement, but you must deposit at least a penny within 15 business days of opening the account.
• TAB Bank High Yield Savings: This account earns 5.27% APY, and all balances receive the promotional APY. There is no monthly service fee, and no minimum deposit is required to open the account.

Remember that interest rates can change, so make sure to check the latest rates before opening an account.

Broad market ETFs/mutual funds

If you are looking to invest $15,000 in mutual funds, one option is to put your money into broad market ETFs or mutual funds. These funds offer a wide variety of investment options, allowing you to invest broadly (e.g., in a total market fund) or more narrowly (e.g., in a sector fund). They are also less risky than investing in individual stocks and bonds due to built-in diversification.

Broad market ETFs and mutual funds are professionally managed collections of individual stocks or bonds. They are overseen by expert portfolio managers who choose and monitor the stocks or bonds the funds invest in, saving you time and effort.

• Fees and minimum investment requirements: ETFs generally have lower investment minimums than mutual funds, and they can be bought for the price of one share. Mutual funds, on the other hand, often have flat-rate minimum initial investments. Additionally, ETFs are typically bought and sold without commissions, while mutual funds may charge sales loads or commissions.
• Control over the price of your trade: ETFs offer more hands-on control over the price of your trade, as they provide real-time pricing and allow for more sophisticated order types. Mutual funds, however, offer a simpler approach, as you get the same price regardless of when you place your order during the trading day.
• Automatic investments and withdrawals: ETFs do not allow for automatic investments or withdrawals. In contrast, mutual funds offer the convenience of setting up automatic transactions based on your preferences.
• Index funds: Most ETFs are index funds, which are passively managed and aim to replicate the performance of a particular market index. Mutual funds can also be index funds, but they may also be actively managed, where fund managers aim to beat the market.
• Vanguard S&P 500 ETF (VOO): This ETF tracks the S&P 500 index and is backed by Vanguard, a well-known name in the industry. It has an expense ratio of 0.03%, meaning you pay $3 annually for every $10,000 invested.
• SPDR S&P 500 ETF Trust (SPY): This ETF is one of the oldest, having been founded in 1993. It is sponsored by State Street Global Advisors and also tracks the S&P 500. It has a slightly higher expense ratio of 0.095%, resulting in a $9.50 annual fee for every $10,000 invested.
• IShares Core S&P 500 ETF (IVV): This ETF is sponsored by BlackRock, one of the largest fund companies. It has an expense ratio of 0.03%, the same as Vanguard's ETF.
• Schwab S&P 500 Index Fund (SWPPX): This mutual fund is sponsored by Charles Schwab and has a strong track record dating back to 1997. It has an extremely low expense ratio of just 0.02%, resulting in a $2 annual fee for every $10,000 invested.
• Vanguard Total Stock Market ETF (VTI): This ETF covers the entire universe of publicly traded stocks in the US and includes small, medium, and large companies across all sectors. It has been around since 2001 and, true to Vanguard's style, has a low expense ratio of 0.03%.

When choosing between broad market ETFs and mutual funds, consider your investment goals, risk tolerance, and preferences for control and convenience. Remember to always do your own research and consult with a financial professional before making any investment decisions.

Growth stocks

If you have $15,000 to invest, you'll want to put that money to work. Inflation can eat away at your savings over time, so it's important to consider your investment options.

When it comes to growth stocks, these are stocks that have the potential for high growth but also come with a significant amount of risk. If you're under 50 and have a high-risk tolerance, growth stocks could be a suitable option for a portion of your $15,000 investment.

• Sector ETFs: ETFs that focus on specific industries with expected growth, such as technology, healthcare, and clean energy. These sectors typically offer strong growth potential but can be volatile.
• Small-Cap Stock Index ETF: Small-cap companies, like iShare Russell 2000 ETF (NYSE: IWM), have significant growth potential as they are not yet well-established. However, they also carry a higher risk of not performing as expected.
• Cloud Computing: This sector is expected to grow exponentially in the coming years. Companies like DigitalOcean (DOCN) are competing with giants like Amazon Web Services and Microsoft Azure. DigitalOcean specialises in serving small to midsize businesses, offering tailored pricing models and a more personalised level of service.
• Pharmaceuticals: Veeva Systems (VEEV) provides cloud-based software and data storage tools to pharmaceutical and biotech companies. With a wide range of products catering to businesses of all sizes, Veeva has a strong position in the market and significant room for growth.
• E-commerce: Shopify (SHOP) is a leader in e-commerce software, providing a range of services to businesses worldwide. With continued innovation and a push into the B2B market, Shopify offers an attractive investment opportunity.

When investing in growth stocks, it's important to remember that past performance does not guarantee future results. These stocks carry a higher level of risk, so be sure to do your research and carefully consider your investment strategy before committing your funds.

Retirement accounts

• Roth IRA: This type of retirement account is a good option if you are an individual with an income that falls under a certain threshold. A Roth IRA allows you to save money for retirement on an after-tax basis, meaning you benefit from tax-free growth and tax-free withdrawals once you retire. You can also withdraw your contributions (but not earnings) at any time without penalty. You can open a Roth IRA through platforms like M1 Finance, Robinhood, Betterment, or Wealthfront.
• 401(k): If you have an employer-sponsored retirement plan, such as a 401(k), there is a good chance you are already invested in mutual funds. These plans offer tax advantages and sometimes matching contributions from your employer.
• Traditional IRA: If you don't qualify for a Roth IRA, you can open a traditional IRA. This type of account uses pre-tax dollars, and your investments grow tax-deferred until you withdraw them in retirement.
• Health Savings Account (HSA): If you have a high-deductible health plan (HDHP), you may be eligible for an HSA. This type of account allows you to save for future healthcare expenses on a tax-advantaged basis, and your contributions are tax-deductible. In 2024, individuals can contribute up to $4,150, while families can contribute up to $8,300. People over 50 can contribute an additional $1,000 per year. You can invest your HSA funds in the stock market through companies like HealthEquity and Lively.

When investing in mutual funds for retirement, it is important to consider your risk tolerance, time horizon, and diversification. Mutual funds are typically considered safer than investing in individual stocks due to their inherent diversification. Additionally, the earlier you start investing for retirement, the more time your investments have to grow.

Frequently asked questions