If you have $10,000 available, it’s seriously time to think about where to invest it. It’s not the kind of money you can take wild chances with, but you will want to start investing it in a way that will enable it to grow.
To provide you with some direction, we’ve compiled a list of the best ways to invest $10,000. Each offers above-average returns with relatively modest levels of risk. In fact, you can choose either an investment with moderate risk and moderate returns or one with no risk at all. We’ve provided three for each category. Choose one, or mix-and-match. It’s up to you how you want to make it work.
Pay Off Credit Card Debt
This isn’t exactly an investment, but if you have credit card debt, it’s a way to get a guaranteed “return” on your money that’s equal to the interest rate you’re paying on your credit cards. For example, if you have a 15% average interest rate on several credit cards totaling $10,000, paying them off will give you an extra $1,500 per year.
Now, that’s not an exact return, since at least in theory, you’ll be paying down the credit card balances over time. Unfortunately, most people tend to keep credit card balances pretty constant. That being the case, paying off your cards would be the equivalent of a 15% annual return. Not only is that a higher rate of return than you’re likely to get on conventional investments, but it’s virtually guaranteed once you pay off the cards.
Robo Advisor Platforms
If you have $10,000 saved, you should certainly consider beginning to invest it. Unfortunately, it’s difficult to achieve any level of diversification with that kind of money. If you want to begin investing in stocks but you’re not sure how to go about it, one of the best ways is to use a robo advisor.
Robo advisors are automated investment platforms that handle all of the responsibilities of investing for you. That includes creating a portfolio, filling it with various investments and rebalancing it periodically when allocations stray too far from their targets. With robo advisors, all you need to do is fund your account. The platform takes care of everything else for you.
What’s more, robo advisors provide an opportunity to invest in stocks, bonds and other asset classes, such as real estate and commodities. And since they invest through exchange-traded funds (ETFs), your portfolio could have hundreds or even thousands of individual securities within it.
Two of the biggest and best-known robo advisors are Wealthfront and Betterment. Each will provide you with a fully diversified, automatically managed investment portfolio with just a few thousand dollars. What’s more, they charge very low fees for that management service. Each charges an annual management fee of just 0.25% of your account.
With an investment of $10,000, the fee would be just $25 per year. That’s a lot of investment management at such a small fee.
With low fees (free for accounts with less than $10,000) and a stellar selection of features, Wealthfront is one of the best players on the robo investing scene. However, some sophisticated investors might find its features lacking.
- Free for Accounts Under $5,000
- Tax-Loss Harvesting for All Accounts
- Stock Level Tax-Loss Harvesting
- Risk Parity
- 529 Plan Option
- Two-Factor Authentication
- Path Considers External Accounts
- No Fractional Shares
Betterment is the best robo advisor platform for beginning investors, with no minimum deposit and low fees... in-depth retirement tools and effective asset allocation... plus, it's possible to receive assistance from human advisors.
- Simple Asset Allocation
- Low Management Fees
- Perfect for Young Investors
- Tax-Coordinated Portfolio
- RetireGuide Calculator
- Flexible Portfolios
- Analyze Accounts Beyond Betterment
- Personalized Advice Packages
- Not for DIYers
- Cannot Asset-Allocate With External Accounts
- No REITs or Commodities
Peer-to-Peer (P2P) Lending
P2P lending is another form of online investing. Except that, rather than investing in stocks, bonds and other assets, you are investing in the loans of people who come to the platforms to borrow money. For example, a borrower comes to the site looking for $10,000 to consolidate credit cards with an average annual interest rate of 20%. They may get a 10% loan on a P2P platform, which is also a fixed-rate, fixed-term, self-amortizing loan. You invest $10,000 in that loan and get a return of 9%. (The remaining 1% is kept by the P2P platform.)
That’s actually an oversimplification. You don’t invest in whole loans, but rather in slivers of loans, referred to as “notes.” They come in denominations of $25. That means a $10,000 investment can be spread across 400 different loans.
There’s risk in making these loans: Borrowers may default. In addition, the loans are often unsecured. But you can reduce this risk by investing in hundreds of different loans, minimizing the impact of default. P2P platforms also have various risk categories, ranging from excellent credit down to fair. Obviously, the lower the credit grade, the higher the interest rate. The idea is to balance out high return (lower credit grades) with safety (higher credit grades). But some P2P investors report earning double-digit rates of return on their investments.
Investors can use Lending Club's P2P platform to see potentially higher returns than from traditional fixed-income investments. However, it's not without its risks and limitations, and the service is open only to accredited investors in a limited number of states.
- Potentially Higher Returns
- Many Filtering Options
- Automated Investing
- Improved Secondary Market
- Untested Investment
- Long-Term Investment
- Returns Are Not Fixed
- Not Everyone Can Invest
- Gains Taxed As Ordinary Income
- 1% Annual Fee
- Revised Lower Returns
- Manual Investing Requires a Lot of Maintenance
- Unsecured Debt
Although Prosper's offerings are not without risk and require a long-term investment, it's not a bad P2P platform that's easy to figure out. However, make sure that it's available to investors in your state before you sign up.
- Quick Invest
- Great Loan Profile
- Better Search Filters
- Previous Prosper Loan History
- Smaller Amount for Diversification
- No Fixed Increments to Invest
- Slightly Riskier
- Smaller Pool of Loans
- Not Everyone Can Invest
Real Estate Crowdfunding
Real estate has proven to be one of the very best investments, representing serious competition with stocks. In most situations, buying real estate for investment purposes wouldn’t be possible with $10,000. Part of the problem is that investment real estate generally requires a down payment of at least 20%. But you can get around that with real estate crowdfunding.
Real estate crowdfunding is actually P2P investing and lending, except that, rather than consumer loans being the investment vehicle, they’re invested instead in real estate or mortgages.
Crowdfunding projects vary from one platform to another. For example, one may invest primarily in commercial real estate. Another may invest in apartment complexes. Still another may center on fix-and-flip investments involving single-family homes and other properties.
RealtyShares is a real estate crowdfunding platform offering a broad range of opportunities, including single-family house flips. However, you must be an accredited investor to participate, and its investments are illiquid by nature.
- $5,000 Minimum
- Variety of Real Estate Offerings
- Diversify Into Real Estate With Small Investments
- Investments Might Have Tax Advantages
- Choice of Investment Types
- Accredited Investors Only
- No Direct IRA Provision
- U.S. Residents Only
- Capital Calls
- Illiquid Investments
- Multi-State Income Tax Consequences
Realty Mogul is an easy-to-use real estate investment platform that, thanks to its private REITs, allows both accredited and non-accredited investors to take part in potentially lucrative opportunities.
- "Pre-vetted" Investments
- Simple Investment Process
- No Capital Calls
- Greater Control Than REITs
- Private REITs
- Accredited Investor
- Illiquid Investments
High Interest Savings and Money Market Accounts
All of the investments listed above provide annual rates of return that are typically higher than what you might get on completely safe, interest-bearing investments. But they also involve a significant degree of risk (except for paying off credit cards). The risk is that you could lose some of your money while investing. In most cases, the returns will be positive if you hold on for several years. But there may be times along the way when your investment value will drop below your initial investment.
If that scares you and you want completely safe investments for your money, you can do that with high-interest savings and money market accounts.
Here are examples of banks currently paying interest rates that are well above average on both savings accounts and money market accounts:
Capital One 360
Bankrate rating: 5/5
Bankrate rating: 3/5
None of these rates will make you rich. In fact, they probably won’t even keep you ahead of the current rate of inflation, which is running at around 2.2%. But they will keep your money completely safe, as well as pay interest rates that are many times higher than the national average of 0.07% currently being paid on typical savings accounts.
U.S. Treasury Securities
If you want completely safe investments that pay (generally) higher rates than savings accounts and money market accounts, you can look at U.S. Treasury securities. These represent U.S. government debt, and they pay higher interest rates if you’re willing to tie up your money for a while.
U.S. Treasury securities fall into four basic categories:
- Treasury Bills — These are short-term government securities, with maturities ranging from 30 days to one year.
- Treasury Notes — These securities have maturities of two, three, five, seven and 10 years. They pay interest every six months.
- Treasury Bonds — These securities have terms of 20 and 30 years and pay interest every six months.
- Treasury Inflation-Protected Securities (TIPS) — TIPS pay interest every six months and are issued for maturities of five, 10 and 30 years. The principal is adjusted by changes in the Consumer Price Index, so the value keeps up with inflation.
U.S. Treasury securities with maturities of one year or more pay the following rates as of May 8, 2018:
- 1 year, 2.24%
- 2 years, 2.51%
- 5 years, 2.81%
- 10 years, 2.99%
- 30 years, 3.14%
We’ve presented the yields for 30-year Treasurys but recommend caution with this term. Despite the higher interest rates, it comes with much greater risk. Longer-term securities are subject to swings in market price, due to interest rate changes. For example, when interest rates rise, the market value of a long-term bond falls.
One bonus with U.S. Treasury securities is that interest paid on the securities is generally exempt for state income tax purposes.
You can purchase Treasury securities in denominations as low as $100 at the Treasury’s portal, Treasury Direct.
Final Thoughts on the Best Way to Invest $10,000
So there you have six different ways to invest $10,000. You can choose to take on risk in an effort to earn higher returns with robo advisors, P2P investing, or crowdfunding. Or you can play it totally safe by paying off high-interest credit cards or investing in high-interest savings and money market accounts or U.S. Treasury securities.
Just remember none of these options need to be permanent. You could keep your money in one or more of the six, then branch out to more aggressive investing methods as your portfolio grows.