So let's assume for a minute that you recieved some type of unexpected windfall - for example an inheritance - and you now have $25,000 of free cash burning a whole in your proverbial pocket. What would you do with it?
I know somebody in this situation and they have been kind enough to share their thoughts on options they are considering (note that they are debt free other than their mortgage and are not included to go on a spending spree):
1. Invest the windfall in a portfolio of stocks and/or funds;
2. Invest the proceeds as a down payment on a condominium (and borrow additional money) and then rent the condominium out; or
3. Invest the proceeds as a down payment in a cash flow positive small business (again borrowing additional money) that could possibly pay off the loan and return your investment within five years.
Each of these of these choices brings its own set of risks and rewards along with it. Because the choices are so diverse, it must also be recognized that each choice will have differing amounts of work attached to them.
From purely a cashflow standpoint, it is likely that the third option will provide the greatest reward - however, at what cost will that reward be achieved? (think about the hours of work that will be involved in handling the affairs of the business). This individual has to seriously consider whether they are willing to invest the time required to generate business profits.
If a limited amount of effort needs to be expended, then leaning toward an investment portfolio may be a good consideration. However, consider that with an investment of that size, it is unlikely that a good portfolio of quality stocks can be put together, so the investor must choice funds instead - and these bring their own set of risks and rewards along with them. Rewards from this option will likely be lower - I would not anticipate long-term returns of greater than 8% (notwithstanding any market fluctuations).
If long-term gains are the goal, then the real estate option is likely the best choice to make. Because the condominium is available at a deflated price, a good rental market and low interest rates gives it almost a positive cash flow from day one with a limited amount of work - along with a lot of long-term potential upside once the housing market rebounds.
So what is the point of this? It simply comes down to choices. As an investor, you must make choices that work for you - notwithstanding what your friends might be saying or what you have heard on TV or from reading some kind of blog. Sit down and think about what you are investing in; don't jump in too fast or without thinking things through; do your research.
Most importantly: pray about it! (duh) It is not every day that you come into a lump sum of cash. Be a good steward with what God has blessed you with.