The beginning of a new approach.

Oct 24, 2006 by

Imagine one day that you had a windfall of n piles of $2,000. In this hypothetical situation, you have no debt, and thus do not need to worry about using the money to pay off loans. Since you received the money in a windfall and were not planning on having it, you are free to invest it to the best of your abilities. In order to achieve some diversification, you decide not to invest more than $2,000 in any given investment. What would you choose?

In order to help answer this question for myself, I visited mturk.com, and paid people to give me investment advice. It’s amazing how helpful will be for a reward of 10. Here are what seven respondents said:


Personally, I would invest in NAT. This is a shipping stock, and the company is involved in shipments of oil, as oil rises, so do their spot prices (revenues received for their transportation of oil). The stock itself has been somewhat volatile, but it has a dividend that hovers around 13% which helps to make up for the natural fluctuations in the stock price, especially with its revenues so closely tied to oil prices. Right now it is relatively low compared to a couple months ago and could see a big up turn if oil prices return to the higher ranges 60 and lower 70. Having only 2000 to invest, I would either put it completely in this stock (somewhat risky) or I would split it up and put the other 1000 in a completely different sector to offset losses if something bad happens in the energy sector. I would not recommend the options market just yet unless you truly know what you are doing because it takes a thorough understanding and many years of experience in just stocks to learn how to play that game, and newcomers to the options market are just seen as easy money. Also, if you want high returns, I suggest staying away from Mutual Funds because most fees are high and eat into the profit and often it just isn’t beneficial to be in those funds for less than a year. Good Luck.

I would start a home-based boxed lunch business catering to Indian doctors and nurses working in hospitals and pining for the tastes of home.

I would put it in the Romanian Stock Exchange market with a 100% percent return until Feb 2007.

I would invest half the amount in Bank Fixed Deposits which will guarantee $1055 at the end of the year. Now I have to ensure that the rest of the amount will not become less than $745 in 90% of time while having enough potential for growth. So I’d invest half the amount in a Mutual Fund which invests heavily in Large Cap stocks (probably some Index Fund) while the rest of the amount ($500) would be invested in a Mutual Fund which invests in high risk high profit potential stocks like Mid Caps or stocks of some niche industry like IT.

First off, if your savings account is paying 5.5%, I’d say you ought to consider taking it. 5.5% is an impressive return for a completely liquid and guaranteed investment. But, if the goal is to do even better than that extremely generous rate in today’s market, then examining the risk side of the equation becomes most important. You say you are willing to risk a 10% chance of losing more than $200. How much more? There is a huge difference between $1800 and $800, or $0. A lot of hedging strategies put the full value of your investment at risk, and more. (e.g. short-selling a stock has unlimited exposure if the price keeps rising). I am inferring from your characterization that you are most accurately willing to endure a 10% risk of ending up with $1800 for the upside chance to realize a superior gain the other 90% of the time. (Or something like that). This sort of risk profile suggests to me that you would be most comfortable with a well-rated equity investment. However, with the Dow recently achieving another record, it’s less likely that the next 12 months will offer the same sorts of returns as have been realized over the past 12 in any sort of broad market or large-cap play. In this case, I’d want to look at the cycles within various industry segments, to identify those portions of the markets that are undervalued. An investment in utilities just a few years ago would have more than doubled by now, and it is this same sort of cyclical upswing that would be advantageous to time. (e.g. buying Buenos Aires real estate at the bottom of their crash would have made you rich by now). Right now, the auto stocks and airline stocks would seem to be beaten up the worst. I’d head to a large fund manager, like Fidelity, and invest in a transportation fund.

Buy as many shares as you can afford to of Garmin stock. It split recently and is on its way back up, and it’s a terrific earner.

I’d buy a Mexican CD for $2,000 USD, delivering a yield of 15% and maturing in July 2007.


How would you invest $2,000? Please leave your response as a comment on this entry.

Note about this site: All content on this site, including comments, are property of Adam C. Powell. Why am I doing this? Well, some day, it might be nice to use some of this content to write a book on personal finance.

9 Comments

  1. Cliff

    I’m more of a risk taker when it comes to money. I’ve been known to get money and risk it all for either a small gain or a huge profit. The common thing I would do, as always, is to set aside half of any money i’m given and put it in a current online savings account to get a nice 5% plus interest. Now the more unorthodox use I go for is based on statistics. This in no way shape or form is guaranteed on any level except the records i’ve been keeping myself on the probability of a payback within a set time. I currently live in Michigan giving me access to the state lottery known as the mega millions. There are 104 times a year on average the game is played (twice a week). Through my calculations over the past 6 months, precisely 55 times played at a dollar a piece, I’ve come out on top with 220 dollars total. Is this guaranteed? Not in the least bit, it’s playing the odds. Like the stock market there’s a risk, however in the lottery there is no trends to follow, just luck and from my end, statistics. My way of investing disregards all regular methods and plays the ultimate game of risk vs reward with always stashing away extras into high safe savings accounts. The thrill of it is exhilerating, brings up self morale and gives bright hopes for an open minded person. Self Statistics are sometimes the best to rely on rather than those found on a website or todays newspaper.

  2. If i had that much amount i would invest in a HYIP company Eutrade Ltd and earn more than 2% per day. For more details please visit my blog :

    http://how-to-earn-real-money-online.blogspot.com/

  3. If I don’t have any debt and the money is a windfall, I think you absolutely have to go with a high-risk, aggressive strategy.

    What could be really interesting is doing small amounts of venture capital investing. Obviously, $2,000 per investment isn’t a ton of money, but it just might be enough to get some interesting business ideas off the ground.

  4. While I appreciate Rafique’s comment, I must warn readers that HYIPs (High Yield Investment Programs) are often very risky, and are also often Ponzi schemes. You can learn more about them on Wikipedia at http://en.wikipedia.org/wiki/HYIP

    When in doubt, remember that “high yield” always means “high risk,” whether the investment is a HYIP or a bond.

  5. If $2000 is a windfall, you’re not talking about someone with a wide range of resources, so this should be low-risk money. I’d go with an index fund. No managed fund has consistently beat the market over time, so paying the extra fees is not economic. It’s foolish to try to stock-pick yourself — you’re going up against professionals so it’s like shooting hoops against Michael Jordon — and betting on yourself. Foliofn.com has a very clever, easy-to-use, low-cost system for replicating the most popular kinds of funds. That’s what I recommend.

  6. There is some truth to Neil’s advice. In fact, I usually invest in index funds myself. However, he has the scenario of this site slightly wrong. I’m not imagining a $2,000 windfall; I’m imagining a windfall of n*2,000 (perhaps n = 5, so the windfall would be $10,000). The idea is that I want to partition the money into piles of $2,000, and then what to do with each pile. That way, people can choose to use some of the advice, as long as their personal n?1.

  7. IndustrialEconomist

    If I had $2,000 to invest, I would invest based upon my experience. If I wanted something totally risk-free, I would invest in a CD at a local bank and get some nice interest rates to combat inflation.

    However I would advise the more experienced investor, or an investor seeking experience to focus on special opportunities/special situations investment. Focus your investments on companies who are restructuring and/or undergoing rapid reform. Take for example Company A, a big corporation who has suffered in profits recently, but has a focused CEO and is working towards reforming the company and it’s stock value by things such as stock buy-backs.

    I would also recommend to do some real reading on investing before trying to test the stock markets- it’s dangerous out there!

  8. james

    I agree with Nell. Put the cash in an index fund and just let it grow. And, if one might need the money in the short-run, a bank CD might be an option. Paying interest penalty for taking the cash out early might be better than taking it out of an index fund during a dip in the stock market.

  9. writingpoli

    I would load up on the highest-earning hybrid vehicle and green solutions in the expectation that those stocks will rise quite quickly once more people/companies realize the need for alternative fuel sources.

    My favorite is MC, the company that makes Toyota hybrid components.

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