Quora Answer: Where or How Should I Invest $500 Monthly at Low-Risk?

The following is my answer to a Quora question: “Where or how should I invest $500 monthly, at low-risk?”

Even at low risk, you cannot go for the safest since the base objective is to still to have a higher return over the investment period than the rate of inflation.  If you cannot match the rate of inflation, then there is no real point investment since you will have negative gains.  I am assuming that you are reasonably young and have an intermediate to lengthy investment horizon based on the amount mentioned monthly.  That being the case, I suggest an investment-linked plan as opposed to a pure mutual fund type investment.

Any sort of fund has the advantage of spreading the risk over several markets and sectors, reducing the chance of a downturn in any one market affecting the overall performance of your securities.  However, an investment-linked plan allows you the opportunity of building an immediate estate and afford you some measure protection should anything untoward occur before your investments mature.  Also, the ILP is as liquid as a normal fund, allowing withdrawals.

The investment horizon is between 15 to 20 years conservatively.  However, these sort of products normally break even in 10 or 11 years.  $500 monthly is $6,000 annually.  This would be an estimated projection for a typical such investment, which has a similar profile of any conservatively managed fund.  In 10 years, you would have paid out $60,000 in total premiums for a $60,000 investment value approximately, which is 0% ROI.  In 15 years, you would have paid out $90,000 in total premiums for a $120,000 investment value approximately, which is 33% ROI.  In 20 years, you would have paid out $120,000 in total premiums for a $195,000 investment value approximately, which is 60% ROI.

If you know how to manage the funds yourself and move them between the different funds to take advantage of the market, you can do better of course.  Based on $500, your coverage is ideally between $100,000 to $200,000 for death, and total and permanent disability.  This means, that the claim will be the $100,000 to $200,000 unless your investment value exceeds this amount.  The amount paid out is always the higher amount.