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If you saved, inherited, or won $50,000 in the lottery, would you know how to invest it comfortably and wisely?
$50k gives you many options for maximizing your investments. Investing in stocks is one of the rather obvious ones but by far not the only option you have. ETFs, bonds, or real estate might also be suitable for you. So what should you choose?
This guide will help you figure out how to invest $50k today.
Before You Begin Investing $50k
First, think about your financial situation thoroughly and look at the factors that dictate how to maximize your $50k investment.
Figure out your goals and how the $50,000 could contribute to reaching them. Do you want to save for a family home, retirement, or your kid’s college education? Your goals will help determine which investments are suitable.
Another important factor is your time horizon. Ask yourself how long you plan to stay invested. Is it 40 years or four? If you’re thinking about retirement, remember that the younger you are, the more chance you have to recover from a black swan event or a bad investment. So, you may opt for riskier investments that have higher returns. On the other hand, if you want to buy a house within a few years, consider conservative investments such as bonds and CDs.
Going hand in hand with your investment time horizon and goals is your risk tolerance. This is the amount of volatility you can stomach when it comes to your returns. If you’re okay with losing your $50,000 without breaking a sweat, then your risk tolerance is very high. If not, choose less aggressive investments.
Finally, you need to decide on your investing approach. Are you looking for a passive or active approach to your investments? Do you love to pick stocks, create CD ladders, or be a landlord? Or, do you prefer investing in vehicles where someone else manages your portfolio and does the heavy lifting for you, such as ETFs and robo-advisors?
Depending on your answers, some of these ideas on investing $50k might suit you better than others.
14 Ways to Invest $50,000
We’ve created a list of 14 ways to invest your money. These options won’t give you a massive headache when searching for options yourself:
1. Contribute to Your Emergency Fund
Our first recommendation to invest in doesn’t provide you with a cash return but is an investment in yourself. If you haven’t set up or fully funded an emergency fund yet, now is the best time to do so. At the bare minimum, aim for three to six months of living expenses to be on the safe side.
The reason is that things can happen unexpectedly and your financial situation might be in jeopardy overnight. Getting laid off or a broken car are just two common examples where emergency cash is beneficial. Having an emergency fund to cover such issues must be a cornerstone of your financial stability and lets you sleep at night.
Use a high-yield savings account to open an emergency fund. That way, you can easily access your money if something happens as these types of accounts are like holding cash.
See Also: 12 Best Ways to Invest $5,000 in 2021
2. Pay off High Consumer Debt
Paying off your consumer debt also doesn’t provide you with a direct cash return but saves you from additional interest payments and frees up financial resources for future investments. This can also help boost your credit score and mental health.
Assume you have an interest rate of 22% on your credit card balance and drag it along. Instead of accumulating more debt and paying interest on your debt, pay down your consumer debt as fast as you can.
The average annual return of the S&P 500 from its inception in 1926 through the end of 2018 is around 10%. Comparing your 22% interest against the averaged stock market returns, you hopefully agree that paying off your consumer debt before investing in the stock market is the better option. Then, once you’re free of your obligations, you can invest the remaining amount of your $50k however you like.
3. Invest in Individual Stocks
After setting up your emergency fund and paying off your consumer debt, investing in stocks can be a suitable option. By buying stocks of a particular company, you trust it to perform very well and that its stock price will increase accordingly. Some investors also look for quarterly or yearly dividends.
To buy individual stocks, you must first open a brokerage account. Excellent options include Public.com and SoFi Invest because they let you trade stocks and fractional shares commission-free and don’t require an account minimum.
Keep in mind that investing in stocks might lead to losses as well. You could end up choosing a company that hasn’t performed as well as you hoped or experienced some financial difficulties along the way. For that reason, investing in companies from different sectors, industries and regions is wise. That way, you minimize the risk of losing all your money. In addition, having $50,000 at hand allows you to create a diversified portfolio of your favorite companies.
4. Invest in an ETF
Picking and investing in individual stocks can be overwhelming and risky for beginner investors. Therefore, investing in exchange-traded funds (ETFs) is an excellent alternative to get started.
ETFs are financial securities that track an index — such as the S&P 500 — and can be traded like stocks. The advantage of ETFs is that they are bundled investments and thereby have a better diversification than any single stock. By buying an ETF, you get an asset-filled basket and broader exposure to sectors and industries than with single stocks. Besides, general market ETFs are usually low-cost investments with low expense ratios.
To purchase ETFs, you should use a brokerage firm such as M1 Finance. There, you can trade shares of an ETF the same way you would trade stocks. While whole shares of ETFs can get expensive, M1 Finance further allows you to buy fractional shares of exchange-traded funds.
See Also: 15 Ways to Invest $1,000
5. Invest in a Mutual Fund
In case stocks or ETFs aren’t your thing, mutual funds might be perfect for you. With a portion of your $50,000, you could easily join other investors in pooling money to invest in particular asset classes and strategies.
By investing in mutual funds, you invest in a portfolio created and handpicked by a professional fund manager. This person does all the research, picks the investments, monitors the performance, and aims to generate significant returns. That way, you can lower your overall risk exposure and don’t have to pick stocks yourself. Instead, you rely on a person whose job is analyzing asset classes.
Using mutual funds as an investment vehicle is a simple way to diversify your capital across asset classes. You can choose to invest in actively managed mutual funds that charge a fee for their services or use brokerages like E*TRADE. E*TRADE offers to invest in thousands of funds with no loads and no transaction fees and lets you invest in pre-built portfolios with only $500.
6. Invest with a Robo-Advisor
If you want to invest in the stock market but can’t or don’t want to spend much money on financial advisors, you should look into investing with a robo-advisor. Typically, this fully digital service is also significantly cheaper than a human advisor.
A robo-advisor will lead you through a questionnaire to determine your investment time horizon, risk attitude, and financial goals. After that, the digital advisor uses algorithms to invest and manage your portfolio according to your unique priorities. Some also rebalance your portfolio periodically.
Having $50k to invest, opening an account with Betterment might be your best choice. The firm is a pioneer and industry leader when it comes to low-cost and automated passive investing services. There is no account minimum and Betterment will create a portfolio that fits your current situation. For an annual management fee of 0.25% per year (or $125/year for $50,000), your investments are taken care of.
7. Invest in Bonds
Apart from stocks, you probably have heard of bonds before. In essence, a bond is a loan from a buyer/ investor to the bond’s issuer, which can be the government or a company. Examples of bonds are Treasuries, corporate bonds, and municipal bonds.
The benefit of bonds is that the issuer pays you a periodic interest rate for the agreed time frame and the face value once the bond matures. Although you don’t have the same level of ownership as you do with stocks, bonds are a good asset for diversifying your portfolio.
See Also: 14 Ways to Invest $100
8. Invest in Certificates of Deposit (CDs)
Another option to invest $50k is in Certificates of Deposit. These certificates, known as CDs, are financial products offered by almost every financial institution, including banks and credit unions.
The way CDs work is that a customer/ investor agrees to deposit a certain amount of money for a specific time frame and in exchange receives an interest rate from the institution. These periods usually cover six, twelve, and eighteen months, but some financial institutions even offer multiple-year CDs. It is essential to leave your money untouched for the agreed term to avoid penalties for early withdrawals. Therefore, only deposit money you know you won’t need, even in case of an emergency.
One way to strategically use CDs is by creating a CD ladder where your certificates mature on various dates. One example could be to open a CD every three months, so you have four CDs constantly circling and creating interest for you.
9. Maximize Your 401(k) Contributions
If your employer offers a 401(k), you should use this tax-advantaged retirement account instantly. The reason is that a 401(k) is an excellent tool to invest in your golden days of retirement. With $50k at hand, you could max out your contributions right away and still have money left to invest in other ways.
The way a 401(k) works is that every dollar you contribute to your retirement plan (until the annual limit of the IRS) will be deducted from your income when filing your taxes. This will further reduce your overall tax bill and grow your retirement cushion.
Although your employer decides on the plan provider, you will be the one to determine the investment vehicle, the amount of risk taken, and your contributions. Besides, some employers offer to match your contributions by 50% or 100%, which can significantly increase your account balance. So, if you haven’t maxed out your 401(k) contributions, use some of your $50,000 to do so.
10. Open and Contribute to an IRA Account
If you don’t have an employer-sponsored 401(k), opening and contributing to an IRA account should be a top priority for you. Even if you have a 401(k) at work and have maxed out your contributions, an individual retirement account (IRA) might still make sense for you.
The reason is that IRAs are long-term investment options that help you sustain your lifestyle after you retire. Retirement accounts come in different forms, such as a traditional IRA or Roth IRA, and let you invest your money in a tax-advantaged way. By opening an account and investing with one of the many financial institutions, your money can grow tax-free or on a tax-deferred basis. Either way, an IRA will help you enjoy your retirement.
Having said this, it is never too early to think about retirement. Therefore, opening an individual retirement account sooner than later is always a great way to invest. And if you already have set up an IRA account, use your $50,000 to max it out so that compound interest can work its magic.
See Also: 9 Best Self-Directed IRA Companies
11. Invest in Real Estate (Rental Properties)
Real estate is one of the most sought-after asset classes to invest money in. In contrast to stocks, bonds, and ETFs, real estate is a very tangible asset class, making it a favorite for investors and people who want to live in their own homes.
Although $50k won’t be enough to buy you a whole property in most areas in the United States, the sum is a great starting point on your way to owning real estate. $50,000 is an adequate amount of money to make a 20%+ down payment for your own house or rental property.
Keep in mind that rental properties are often more time-consuming when you fix everything yourself. They also impose higher costs if you pay someone to do the work for you. Investing in real estate is also a riskier investment because you’re putting all your money into one asset.
12. Invest in Real Estate Investment Trusts (REITs)
Another option to invest in real estate are real estate investment trusts, called REITs. Like stocks, REITs are usually publicly traded on stock exchanges and a smart way to invest in different real estate types without actually owning any property. REITs often contain a mix of office buildings, residential properties, mortgages, and retail spaces.
If you want to invest in real estate but don’t want to be a landlord, REITs are the perfect investment vehicle for you. Currently, more and more investing platforms, such as Fundrise, are emerging and making investing in REITs hassle-free and straightforward for retail investors.
The platform offers to invest in a diversified and low-cost portfolio of commercial real estate projects located all around the United States. You can earn returns from quarterly dividends as well as value appreciation of your investment’s shares. And the best thing about Fundrise is that you only need $500 to become one of their real estate investors.
13. Invest in Bitcoin
Alternative investments are on the rise compared to traditional asset classes, and cryptocurrencies play a considerable part in this new wave of investments. Regardless of whether you already have a diversified portfolio, investing in Bitcoin can add another layer of diversification.
Bitcoin, which is the most popular cryptocurrency, has been on a rollercoaster for years but can be seen as a typical high-risk/ high-reward investment. Cryptocurrencies became one of millennials’ favorite asset classes and are one of the reasons why apps such as Robinhood are so popular.
Still, Bitcoin and other cryptocurrencies are only for those investors who have a high-risk tolerance and are comfortable taking risks. And even when you do, you should only have around 5% of your portfolio invested in Bitcoin. This means that you shouldn’t put all your capital into this asset class unless you already have $950,000 or more sitting in other investments. Instead, diversify across multiple asset classes first.
14. Fund a 529 Account
Maybe you are a parent and want your kid to go to college someday. A 529 account is a powerful vehicle for saving for your kid’s education. If you not only want to invest in your future but your kid’s future as well, you should open a 529 account and put some of your $50k into it.
A college savings plan offers tax-free earnings growth and withdrawals aren’t taxed federally if used for qualified education expenses. Such expenses can include tuition costs, fees, housing, education materials, or other related college expenses.
When opening a 529 account, make sure to check the plan details and rules that apply to get the most out of your plan because they vary from institution to institution. Some of them also offer the option to adjust the investment mix depending on your child’s age.
If you are in the fortunate situation to be able to invest $50k in one swoop, you have many options to choose from. Here, we’ve covered intelligent ways to invest for your future. These approaches illustrate that you don’t have to invest in stocks or real estate only. Like we mentioned above, setting up an emergency fund and paying off your consumer debt should be your main priority before investing anything.
The investments you end up making solely depend on your personality and investor profile. Take your time to figure out the factors that determine your investment strategy because having a plan for investing $50k is crucial. Younger investors may play it riskier as they have more time to recover than someone closer to retirement.
Ultimately, if you haven’t invested any money before, take little risk at first and diversify across asset classes. Choose a few of our ways to invest $50k and make adjustments as your balance grows.
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Carsten is a Freelance Copywriter with a personal interest in money management and investing. Besides taking care of his investments, he loves traveling, reading books, and working out (calisthenics & yoga).