5 Effective Ways to Invest $10,000 that Will Pay You Back

5 Effective Ways to Invest $10,000 that Will Pay You Back
photo ©mploscar /pixabay.com

Effective Ways to Invest

If you have $10,000, what would you do?  If you are smart enough to read this article, probably you are thinking effective ways to invest and how to transform $10,000 into $10 million.  Well, it won’t be that drastic, but here are little tips to reliably grow your asset.  First, do not spend.  It sounds so mundane but many people spend once they have some unexpected income such as tax return.  According to TaxSlayer’s survey, 13% of those who answered are considering for spending spree and another 13% said purchase an experience.


Taxslayer.Com Consumer Survey:
How They Spend Their Tax Refund In 2018? [1]

Pay off debt 42%
Save 43%
Contribute to a retirement account 9%
Spending spree 13%
Purchase an experience 13%

-Consumers may answer more than one answer


If you are ambitious about your future in long-term, the value investing is always effective ways to invest and the best option. Here are some reliable options for short-term or mid-term perspective to increase your asset. If you want to know about bond investment related terms, click this link.


  1. Treasury Securities

    Treasury securities are a type of bond and issued by the federal government.  There are 4 common types.  First, Treasury Bills (T-Bills) are the bonds with maturity date less than 1 year.  Second, Treasury Notes (T-Notes) are the bonds with maturity date between 1 and 10 years.  Third, Treasury Bonds (T-Bonds) are the bonds with maturity date 10 to 30 years.  Lastly, Treasury Inflation-Protected Securities (TIPS) are the securities that the principal is adjusted based on the Consumer Price Index with the maturity terms of 5, 10, and 30 years.Treasury securities are taxed at federal level but may be exempt from state and local income tax.  They are considered very low risk investment option and the market value normally hovers around really close to face value.  They are very stable option and effective ways to invest.



Treasury Securities Maturity Term Yield+
Treasury Bills 4-52 weeks 1.5-2%
Treasury Notes 1 – 10 years 2-3%
Treasury Bonds >10 years 3-3.5%
Treasury Inflation-Protected Securities (TIPS) 5, 10, 30 years 0.6-0.8%


1.1 Treasury Bills (1 to 12 months)

The treasury bills normally won’t pay coupon (zero coupon) and they are sold at discount price and the face value will be paid once the bond reaches the maturity date.  The yield (annualized interest) up on maturity is about 1.5 to 2 %.

1.2 Treasury Notes (1 to 10 years)

Treasury Notes pay coupon (fixed interest as a percentage of face value) and the recent coupon rate is around 2.2 to 2.8% depends on the term of maturity and when to buy.

1.3 Treasury Bonds (>10 years, normally 30 years)

Treasury Bonds are similar to T-Bills and T-Notes but expected to pay the highest yield among them.  The recent coupon rate is around 2.5% to 3.0%

1.4 Treasury Inflation-Protected Securities (TIPS) (5, 10, and 30 years)

Treasury Inflation-Protected Securities (TIPS) pay fixed coupon but the principal is adjusted based on CPI (Consumer Price Index) published by U.S. Bureau of Labor Statistics.  For example, if you have $10,000 of TIPS with coupon rate of 2% and the annual CPI is 1%, then the principal of TIPS is increased by 1% to $10,100.  Then the coupon is $10,100 x 0.02 = $202.  If the CPI is unchanged throughout the year, with same TIPS, the coupon is $100.  If the CPI goes negative, the principal is decreased by the percentage of CPI change and the coupon is based on adjusted principal.  e.g.  if you have $10,000  of TIPS principal with 2% of coupon rate, the annual CPI is decreased by 1.5%, the coupon payment is $10,000 x (1 – 0.015) x 0.02 = $197.

However, one good thing about TIPS is that if the principal payment up on the maturity is either the original value or inflated value whichever higher.  Therefore, even if your principal is decreased due to negative CPI over the investment term, you will get at least initial principal invested or inflated amount of principal back.  Note, the TIPS need to be matured, if you sell your TIPS principal prior to maturity in the secondary market, your principal may be sold as is and may not be adjusted.


2. Municipal bonds

Another effective ways to invest is municipal bonds.  The state or local government issues municipal bonds. The common examples are funding for infrastructure development, school district or other public project. The risk is little higher than Treasury securities but they often accompany higher coupon rate. The biggest advantage of municipal bonds is that they are often tax exempt from both federal and state if you buy one from the state where you live. When you buy municipal bonds, make sure to check whether the bond you’re buying is taxable or not.


3. Corporate bonds 

Similarly, the basic structure of corporate bonds is very much like above two types of bonds except that the private commercial organization issues the bonds. They are taxable, higher risk than treasury securities and municipal bonds but normally offer higher coupon rate or yield. Wide varieties of corporate bonds are available. If you decided by one, make sure to check the company’s financial statement.  In terms of stability, the corporate bonds could be less effective ways to invest but depends on risk and yield, it is worth of consideration.

For high grade bonds with relatively high coupon rate, the price of those will rise quickly once sold in the market and become premium, a higher market value with lower yield. As the time approaches towards maturity date, the market value will go down since the investors paid higher than face value to buy and don’t won’t to cash out at face value on the maturity date.


4. Preferred Stocks

The preferred stocks pay fixed dividends every designated period often twice a year. Many preferred stocks are qualified dividends meaning the long-term capital gain tax applies. The long-term capital gain tax imposed is between 15% and maximum of 20% instead of marginal tax rate between 10% and 39.6%. If your marginal income tax bracket is 10% or 15%, your long-term capital gain tax is 0% (as of 2017-tax year). This is really money saving tip and effective ways to invest.

The tax rate applied on the interest income is the highest bracket in the corresponding income level. e.g. If you earned W-2 salary of $100,000 and $10,000 of interest income (saving account, coupon of bonds, etc…) including non-qualified dividends, your marginal tax rate is 25% and full 25% tax rate applies to $10,000 ($10,000 x 0.25 = $2,500). If it’s qualified dividends, only 15% applies to $10,000 ($10,000 x 0.15 = $1,500). That’s $1,000 saving. If your marginal income tax bracket is 10% or 15%, whole $2,500 is yours.

It’s not always though, the wave of economy or market less likely to influence the price of preferred stocks. But it’s not wise to hold for very long time since the long term principal growth is very shallow. For the best return, aim bargain and hold it for 1 to 5 years.

In order to be qualified for qualified dividend, the common stock must be held more than 60 days during 121-day period which starts 60 days before ex-dividend date (the date that determines whether the stock is held or not for the next dividend payment). The period is extended to 90 days during 181-day period for preferred stock.  Taxing perspective, these are effective ways to invest.


5. Index Funds

Investing in the index funds is one of the effective ways to invest, the equity market grows in long-term and the index funds follow the behavior of market indexes very closely. The professionals at financial institutions manage Index funds.  They consist of variety of stocks, bonds, and sometimes commodities. The index funds incur associated fees to cover the expense and expressed in expense ratio (fees on based the percentage of principal). Here are some of major index funds for stable investment options. In addition to principal growth, these index funds offer dividends. This is another bonus.


Ticker Expense ratio (As of 5/30/2018) Minimum Investment 10-year principal gain* (2008 – 2018) Principal** CAGR Dividend Ratio*** Total dividend payout
VFINX [2] 0.14% 3,000 23,400 8.87% 1.72% 2,830
VTSAX [3] 0.04% 3,000   23,400 8.87% 1.66% 2,735
VIMAX [4] 0.05% 10,000  23,450 8.87% 1.32% 2,173
FNCMX [5] 0.42% 2,500 33,000 12.68% 0.65% 1,128
FSTVX [6] 0.04% 10,000 24,000 9.15% 1.27%  2,100
FSTMX [7] 0.09% 2,500 24,000 9.15% 1.23% 2,035

TTM: Trailing Twelve Month
CAGR: Compound Annual Growth Rate

Indeed, Dow Jones Industry Average was 56 points in January 1915 [8] and has been grown to 24,100 in March 2018 [8].  Sure, the market went through great depression, and several recessions.  Every time the market suffers, it eventually bounces back.  There is a strong correlation between index funds and CPI (consumer price index).  Therefore, it provides great protection against inflation.  Lock it down and let it grow.  Index funds are stable investments to protect your asset for long-term perspective.



  • + The value of yield varies based on the market situation. The numbers shown are probable range as of 2018
  • *10-year principal gain is an approximate present value if $10,000 is invested 10 years ago (from May 31, 2018)
  • ** The dividend reinvestment is excluded from principal growth calculation
  • *** The percentages of dividends are calculated based on last annual dividend payout divided by ticker price as of May 31, 2018.  This percentage is applied to each year to calculate annual dividend payout.




1. Tax Refund Do’s & Don’ts, TaxSlayer.com

2. VFINX    Vanguard 500 Index Fund Investor Shares

3. VTSAX    Vanguard Total Stock Market Index Fund Admiral Shares

4. VIMAX   Vanguard Mid-Cap Index Fund Admiral Shares

5. FNCMX   Fidelity Nasdaq Composite Index Fund

6. FSTVX    Fidelity Total Market Index Fund – Premium Class

7. FSTMX   Fidelity Total Market Index Fund – Investor Class

8. Dow Jones – 100 Year Historical Chart, Macrotrends.net

featured image by mploscar @pixabay.com


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