5,000 to invest - which funds should I buy?

[JonesyOne]

I'm looking to sign up for an online brokerage and start investing 5,000.  The advice I'm looking for is which online brokerage do you recommend and which funds would you buy with the 5,000 dollars.

[matchewed]

The lowest cost one that fits your asset allocation.

[viper155]

We will need more info......

Age
Marital Status
Income
Expenses
Risk Tolerance
Long or Short Term

[Thespoof]

All of the above, but a low cost ETF that tracks the whole market is surely a safe bet. Me, I'd put the money into my REITs, but that's me and my situation. You sound like you need to do a LOT of reading before you invest. I'm sure there will be a plethora of info in following posts.f

[solon]

Also, what's your time frame? 3 months? 10 years? Retirement in 40 years? All of this matters when choosing investments.

[milesdividendmd]

So many options.

Off the top of my head:

First read an investing book or 2.

Then go with..

1.  Vanguard: invest it all in mutual funds.

2.  TD Ameritrade: there is literally no lazy portfolio you cannot create with their 100 Fee free Etfs. Better user interface than vanguard.

http://www.bogleheads.org/wiki/Lazy_portfolios

Or if investing isn't your thing, don't read a book and just set it and forget it with...

3. Betterment. Simplicity at a reasonable price. Well diversified portfolio, and almost zero effort (which you pay for).

[TomTX]

Funds? Try "Fund".

You only have $5,000. Pick a low-cost fund* - and "low cost" means no load, and expenses are 0.25% or less.

Between now and when you get to $50,000 in investments, read a lot on investing. Read every MMM blog post. Start at the earliest posts in this forum and work forward.

Once you have enough assets to allocate, by then you should have figured out what your asset allocation should be.

 *I like Vanguard Total Stock Market, but that's me. High volatility, high expected long-term return. I expect periodic crashes, losing 25-50%. NBD to me. I'm paying 0.05% in expenses.

[JonesyOne]

I apologize for not giving more information at the beginning.  I'm 34 years old and my wife and I have strong retirement portfolios going.  I have 110k in my 401k which is being maxed out at 15% and my wife has a retirement account with 190k also being maxed out.  The 5,000 to invest is along the lines of hobby and a challenge to myself to see if I can turn 5,000 into something significant since I've never actually invested on my own.  So I'm looking for brokerages to use and some fund(s) to get me started where I can build some confidence by seeing some returns.   

[Cwadda]

I apologize for not giving more information at the beginning.  I'm 34 years old and my wife and I have strong retirement portfolios going.  I have 110k in my 401k which is being maxed out at 15% and my wife has a retirement account with 190k also being maxed out.  The 5,000 to invest is along the lines of hobby and a challenge to myself to see if I can turn 5,000 into something significant since I've never actually invested on my own.  So I'm looking for brokerages to use and some fund(s) to get me started where I can build some confidence by seeing some returns.   

We're assuming you've already contributed to you and your wife's Roth/Traditional IRA?

[JonesyOne]

We don't have Roth/Traditional IRA.  Should that be the next step versus playing my 5,000 in the stock market?

[JonesyOne]

I guess I should add that I want to be able to add and withdraw from the account without much fuss

[Cwadda]

We don't have Roth/Traditional IRA.  Should that be the next step versus playing my 5,000 in the stock market?

1000000% yes. Those are tax-advantaged accounts. A Roth/Traditional IRA is just a classification of an account. You can still invest in whatever you want with them.

If you don't mind sharing your details (Gross combined income for you and your spouse) we can point you in the next step you can take ^.^

How quickly would you need a withdrawal to be?

[JonesyOne]

170k gross household income.  The withdrawl wouldn't need to be anything immediate - just something I could withdraw from with a few weeks notice. 

[Cwadda]

170k gross household income.  The withdrawl wouldn't need to be anything immediate - just something I could withdraw from with a few weeks notice.

Okay, I'll give you a recommendation and you and others can critique it from there.

I think the best bet would be to go with a Roth IRA. This means that as long as your gross income is less than $181k/year you can contribution up to $5500 per year for you AND your wife (so $11,000 yearly). With this account you are free to invest in the stock market - broadly speaking. You can put it in a low expense ratio stock index, let it grow, and be on your merry way.

With a Roth IRA, your contributions are not tax-deductible. If you withdraw from it early (before age 59.5), there is a penalty ON GAINS ONLY (not contributions) of 10% plus you must pay taxes (your current tax bracket) on those gains as well. Therefore you are fine contributing $5,000 and then if you need it, can withdraw that $5,000 without penalty. But be prepared to pay a hefty sum when it grows and you take out the money prematurely.

Also noteworthy the order of withdrawal is this:
1. Regular contributions - always tax- and penalty-free
2. Conversion contributions (doesn't apply to you) - which come out on a first-in, first-out basis
3. Earnings on contributions

So if you contribute $5000, it makes $1000 and you withdraw $5000, no taxes/penalties. If the same scenario you were to withdraw all $6000, you'd pay 10% penalty on the $1000 gained and also have to pay taxes with respect to your tax bracket on that $1000.

The best part: When you are 59.5 you are able to withdraw from it and everything is completely tax-free. Also, there are no mandatory distributions meaning you can let it grow until you die.

[Cwadda]

Compare a Roth IRA with a Traditional IRA.

Traditional IRA contributions ARE tax-deductible. However, you must pay taxes on everything when you withdraw. If you withdraw before age 59.5 you are also subject to a 10% penalty. A Traditional IRA is more comparable to a 401(k) in that sense. It's better to withdraw from the Traditional when you're older, not working, and in a low tax bracket.

But for your case, I see Roth as the best option since you will be free to withdraw your contributions without penalty.

Hope this helps.

[matchewed]

So you just want to play with $5k? Then whatever the hell you want to invest it in.

If you're looking to build wealth and learn about investing, well start with some basic diversified index funds and start reading on investing. The worst thing that happens is you make market returns minus small expense ratio and you learn about investing.