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I am 29 year old living in USA, married and expecting first child this summer. We are debt free and both have stable jobs. I have a side business earning me about $30K net income a year. We have about $110k net cash saved in our bank account. I need help with investing...

  1. We rent currently. Should I use big chunk of my savings and buy a house in this market? I live in DC area. My wife might quit her job after giving birth.

  2. What is the best way to invest money as I don't want it to sit in my bank and devalue due to inflation? I am not getting any interest as it is forbidden in my religion so I am not thinking of investing in any interest giving vehicles either?

  3. Should I invest in Mutual Fund?

  4. Any other creative, low risk investment idea will be appreciated.

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Honest question from a nieve reader: How is interest forbidden, but an investment is acceptable? –  Pete Sep 5 '12 at 19:06

2 Answers 2

Basically the first thing you should do before you invest your money is to learn about investing and learn about what you want to invest in. Another thing to think about is that usually low risk can also mean low returns. As you are quite young and have some savings put aside you should generally aim for higher risk higher return investments and then when you start to reach retirement age aim for less risky lower return investments. In saying that, just because an investment is considered high risk does not mean you have to be exposed to the full risk of that investment. You do this by managing your risk to an acceptable level which will allow you to sleep at night. To do this you need to learn about what you are investing in.

As an example about managing your risk in an investment, say you want to invest $50,000 in shares. If you put the full $50,000 into one share and that share price drops dramatically you will lose a large portion of your money straight away. If instead you spent a maximum of $10,000 on 5 different shares, even if one of them falls dramatically, you still have another 4 which may be doing a lot better thus minimising your losses. To take it one step further you might say if anyone of the shares you bought falls by 20% then you will sell those shares and limit your losses to $2000 per share. If the worst case scenario occurred and all 5 of your shares fell during a stock market crash you would limit your total losses to $10,000 instead of $50,000. Most successful investors put just as much if not more emphasis on managing the risk on their investments and limiting their losses as they do in selecting the investments.

As I am not in the US, I cannot really comment whether it is the right time to buy property over there, especially as the market conditions would be different in different states and in different areas of each state. However, a good indication of when to buy properties is when prices have dropped and are starting to stabilise. As you are renting at the moment one option you might want to look at is buying a place to live in so you don't need to rent any more. You can compare your current rent payment with the mortgage payment if you were to buy a house to live in. If your mortgage payments are lower than your rent payments then this could be a good option.

But whatever you do make sure you learn about it first. Make sure you spend the time looking at for sale properties for a few months in the area you want to buy before you do buy. This will give you an indication of how much properties in that area are really worth and if prices are stable, still falling or starting to go up.

Good luck, and remember, research, research and more research. Even if you are to take someone elses advice and recommendations, you should learn enough yourself to be able to tell if their advice and recommendations make sense and are right for your current situation.

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Since you mention the religion restriction, you should probably look into the stock market or funds investing in it.

Owning stock basically means you own a part of a company and benefit from any increase in value the company may have (and 'loose' on decreases, provided you sell your stock) and you also earn dividends over the company's profit.

If you do your research properly and buy into stable companies you shouldn't need to bother about temporary market movements or crashes (do pay attention to deterioration on the businesses you own though). When buying stocks you should be aiming for the very long run.

As mentioned by Victor, do your research, I recommend you start it by looking into 'value stocks' should you choose that path.

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protected by Chris W. Rea Aug 31 '12 at 15:38

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