The 10% Rule for Investing – How to Invest Your Mad Money

Some links below are from our sponsors. Here’s how we make money.

Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone. This article may contain links from our advertisers. For more information, please see our Advertising Policy.

Where should you invest your mad money?Where should you invest your mad money?
Index funds are boring. Money market funds and certificates of deposit make me want to pull my hair out from boredom too. There is no denying that these investments are typically the bread and butter of your retirement investment portfolio, and rightfully so. And, of course, most financial planners and experts praise market mirroring investments…

Index funds are boring. Money market funds and certificates of deposit make me want to pull my hair out from boredom too. There is no denying that these investments are typically the bread and butter of your retirement investment portfolio, and rightfully so.

And, of course, most financial planners and experts praise market mirroring investments such as index funds for their extremely low fees and the difficulty active mutual fund managers have trying to beat the overall stock market for the long-term. But, the question remains. Should your entire nest egg be in these types of investments? Of course, it shouldn’t. Like the saying goes, “All work and no play makes Timmy a dull boy.”

Where should you invest your mad money?

You need some spice in your investing just like you need it in life. You need some excitement mixed in with your ordinary investments. If you just wanted to mirror the overall stock market, you could just have a robot or a computer program invest for you.

But, what is the fun in that? Having excitement and the chance of really scoring a huge win is one of the reasons that we all keep investing whether we admit that to ourselves or not. To a certain degree, we all think that we can come up with that one great idea in our lives and hit a home run as an investor. But, you do not want to invest a huge portion of your nest egg on your gambles. You still need to be able to recover in case your investment doesn’t pan out. And that is where “Mad Money” comes into play.

Let’s swing for the fences just a little, not with your entire life’s savings. Many financial experts recommend investing only 10% or less in investments that you are passionate about, have a gut feeling about, or investment ideas think that you could really knock out of the park. Here are three ideas to light your fire and passion for investing again, potential investments that you can hit home runs with.

Investing In Peer-To-Peer Lending

Have you ever been approached by a friend who has a great investment idea or an idea for a new business?

Now there is a way for you to become the bank, so to speak, and lend money to people directly who have a great idea, want to start a business, need help funding their wedding or sending their kids to college, want to consolidate credit card bills into a lower interest rate, or need money for a host of other reasons.

Peer-to-peer lending services such as Lending Club or Prosper allow you to invest in loans directly to other people skipping the bank. The average returns on peer-to-peer lending loans are often 10% or more.

Investing In Real Estate Investment Trusts

I have always wanted to be a real estate mogul like Donald Trump or maybe even like one of those guys you see on television that are flipping houses left and right. The only problem is that I can’t hit a nail straight to save my life, and I barely had enough for a down payment for my own home let alone an investment property.

But, there is still a way that you can invest in real estate without all of the pressure of finding tenants, leasing buildings, running construction crews, and the like. Real estate investment trusts (REIT) are similar to mutual funds and allow you to invest in shares. There is a REIT for every type of real estate from rental properties, apartment complexes, commercial properties, shopping malls, and everything in between. Another great benefit of REITs is their dividends. They are required by law to distribute 90% of their taxable income to investors each year in the form of dividends, and with most averaging a 5% yield or more, REITs are an attractive option for investors.

Investing In Gold

Investors have had a love hate relationship with gold over the years. You typically either are a gold bug who loves it or someone who utterly hates the investment. But, there is actually room for both in the market and for precious metals in your portfolio.

I’m not advocating purchasing gold off of late night television infomercials or storing bullion bars under your bed, but precious metals, in general, provide investors with great diversification. Instead of owning just gold bars, you can invest in the entire gold sector including miners, processing companies, options, and actual gold through the ETF, SPDR Gold Trust (Ticker Symbol: GLD) which is up over 20% year-to-date. There are also so many other great precious metals besides gold that you can invest in such as copper, silver, and the like. There are several great mutual funds that hold a wide range of those metals like the USAA Precious Metals Fund (USAGX), up fourfold in the past 10 years.

Should these types of investments comprise the majority of your retirement portfolio? Of course not! But, there is no harm in using a small portion of your portfolio, no more than 10%, to invest in things that get your blood pumping. We should all strive to find investments that we are excited to own. What type of great investments gets you excited and your blood pumping?

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Posted In:

About Hank Coleman

Hank Coleman is a personal finance writer and the publisher of Money Q&A, where he writes about investing, retirement, and budgeting tips. Be sure to connect with Hank on Twitter @MoneyQandA and on Facebook.

Reader Interactions


    Leave A Comment:


    About the comments on this site:

    These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

  1. Dollar D @ The Dollar Disciple says

    Personally, I use Lending Club for my investment “fun money”. I don’t have a lot in it but I love the concept and it’s cool that you can do it for as little as $25 (less if you buy an existing note off the market).

    • Hank says

      I think Lending Club is a great place for your mad money investing too. I’m a big fan of investments with low minimums to start. You can also find a lot of mutual funds that waive their minimums if you agree to invest every month automatically. And, DRIPs are a great way to dollar cost average into an individual stock.

    • Ryan says

      Thanks for sharing, Hank! These are all great tips. I’ve used a little bit of Mad Money for investing, but not nearly 10% of my portfolio. I bought a couple individual stocks, and I dabbled in Peer to Peer lending. In all cases it was money that I could afford to take a risk with. And so far, I have come out ahead in all my mad money investments, so no complaints! (but the majority of my retirement portfolio is in index and mutual funds).

  2. Hank says

    I love to use DRIPs when I dabble in individual stocks too. I forgot to mention that. It is not the only way I buy individual stocks, but it is my preferred method if I am planning on holding them for a long time.

  3. Anel Kitts says

    A lot of people think they can simply own a basket of stocks and forget about them. They embrace the idea of “buy and hold,” the investing strategy championed, which says that any losses incurred in the short term eventually will be made up in the future.

Disclaimer: The content on this site is for informational and entertainment purposes only and is not professional financial advice. References to third party products, rates, and offers may change without notice. Please visit the referenced site for current information. We may receive compensation through affiliate or advertising relationships from products mentioned on this site. However, we do not accept compensation for positive reviews; all reviews on this site represent the opinions of the author. Privacy Policy

Editorial Disclosure: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.