What to Do With $5,000

OK, so you have $5,000 burning a hole in your pocket, and you're itching to do something with it. Here are some ideas.

That $5,000 can give you, your spouse, and your kids a vacation to remember. If it's just you, perhaps with a significant other, your money could go even further. A one- or two-week trip to Antarctica can cost $4,000 to $5,000 for a berth in a two-person room. (There would be extra costs involved in getting to the boat, though, among other things. And you might need a zoom lens to better capture those cute penguin faces.)

Invest it
Think seriously about investing that money, especially if you're one of the many millions of Americans whose retirement savings are woefully behind schedule. If that $5,000 is invested in a broad-market index fund, and it earns the market's historical average (never guaranteed, of course) of about 10% per year, in 30 years it would grow to more than $87,000.

That may not seem like much, but if you withdraw 4% of that amount each year in retirement, you would be getting about $3,500 each year -- all from a one-time $5,000 investment. (As my colleague Rich Greifner has noted, mutual funds are the "Best. Investments. Ever.")

Some high-quality, low-cost managed mutual funds have proved to be even better than the market's average. For example, there's the Meridian Value (MVALX) fund, sporting a 10-year average annual return of 13% (10 percentage points per year better than the S&P 500 index), with top holdings that recently included Marvel (NYSE: MVL  ) , Anheuser-Busch (NYSE: BUD  ) , Intel (Nasdaq: INTC  ) , and Dynegy (NYSE: DYN  ) .

And it's not alone in being a way-above-average mutual fund. Another strong performer is the Vanguard Capital Opportunity (VHCOX) fund, with a 10-year average annual gain of 15% and recent top holdings such as Biogen Idec (Nasdaq: BIIB  ) , Nordstrom (NYSE: JWN  ) , and Eli Lilly (NYSE: LLY  ) . Unfortunately, it's currently closed to new money.

Still, lots of terrific funds remain open for business, and even closed ones may reopen one day. Some funds can help you double your money.

If you need help finding some of those winners, take a free trial of our Motley Fool Champion Funds newsletter service, which has helped me find a bunch of solid performers for my portfolio. (Its recommendations have been beating the market, 23% versus 3%, and a free trial will give you access to all past issues and all recommended funds.)

Give it away
I'm serious. You can do a heck of a lot of good in the world if you strategically donate that $5,000. You can even do a lot by just giving $1,000 and spending the remaining $4,000 other ways.

You might also give to loved ones. Perhaps an aunt, uncle, or parent is missing out on the online revolution. If so, you can buy a solid computer system for that person for less than $1,000. Imagine how you might transform someone's world.

Earn an instant 25% return
If you're saddled with credit card debt, you really should pay it off before investing. Although you can hope to earn 10% to 15% per year on your investments, you may be forking over 20% to 30% or more per year in interest on your debt. If your interest rate is 25% (which is not all that unusual), paying off $5,000 in debt at that rate would save you from having to pay $1,250 in interest this year.

Remodel your home
Spending money on your house will often give you not only pleasure, but also extra money when you sell. With most remodeling projects, you'll recoup a hefty fraction of what you spent by getting a higher price come sale time. With around $5,000, you may be able to buy a bunch of new windows, replace the siding on your home, get your house painted, or put on a new roof.

Remodel yourself
Another option is remodeling yourself. You could go back to school to learn a new skill or even a new profession. At the online University of Phoenix, for example, you can take courses or earn a degree or professional certificate. At many colleges, you can take a course preparing you for a human resources management certification for around $1,100. At Kaplan University, you may be able to become a forensic nurse if you have $3,400 to spend and 12 months to study. If so, you can earn $55 or more per hour.

If you're interested in learning without collecting credits or certificates, here's a wonderful opportunity that Fool Community member Windowseat wrote to me about: "It's possible to download almost all of the MIT courses and take them at home. ... Free knowledge. Free information. ... What an incredible gift to the world." Another friend recently alerted me to free Berkeley courses and lectures. You can go a long way on $5,000 with this route.

You can remodel yourself physically, too. Equipping a home gym with fitness equipment can cost less than $5,000, and even as little as $1,000. And a gym membership will generally cost you considerably less than $5,000 per year. In fact, you might spend just $150 on two pairs of sneakers, start a walking or running routine, and invest the rest!

So the next time you find yourself with $5,000, think carefully about how to spend it. That money could pay you back in all sorts of ways.

This article was originally published on Oct. 6, 2006. It has been updated.

Longtime contributor Selena Maranjian owns shares of no company mentioned in this article. Eli Lilly is a Motley Fool Income Investor recommendation. Intel is an Inside Value pick, and Anheuser-Busch is a former pick. Biogen Idec and Marvel are Stock Advisor recommendations. The Motley Fool is Fools writing for Fools.

Read/Post Comments (2) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2008, at 5:11 PM, Advocatesstudio wrote:

    I read a lot of articles on the web, but I really have to say that this one said the right thing at the right time. Well done.

  • Report this Comment On July 02, 2008, at 8:32 PM, joshbk wrote:

    Thanks for the tips.

    What about investing in stocks - is $5,000 too little to begin choosing individual stocks?

    I've seen various recommendations for suitable minimums to put in the stock market - is there a good TMF resource or discussion about this?

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