If you find yourself with an extra 50k, what would you do with it? If you can, you should invest this money in your future. You can invest in stocks and exchange-traded funds with a service like E*TRADE or Stash Invest. Or you use it to improve your current financial situation. There are many options available. Read on to find out how to invest $50,000.
How to Invest 50k?
- Before You Start
- Ten Ways You Can Invest Your Money
Things to Keep in Mind Before You Invest $50,000
Before investing $50,000, step back, and assess your financial situation. Are you facing any current, pressing financial issues? Before you invest your money, you need to make sure your finances are in order. Let's go over few steps you should do before you get into investing.
Get an Emergency Fund
Financial advisors recommend having an emergency fund of three to six months of living expenses set aside in the event of a job loss or other financial disruption in our lives. Invest this money someplace safe and liquid, such as in a money market fund or account, a savings account, or some other safe, liquid vehicle. Keep this money available for when you need it, and take little or no downside risk with it. Experts recommend keeping a decent amount of your emergency fund in a high-yield savings account, as offered by Wealthfront Cash.
Pay Off Debt
If you have debt that you are paying off gradually, use some or all of the $50,000 to pay down that debt, especially if the debt carries a relatively high-interest rate. For example, if you have $30,000 in credit card debt at an interest rate of 20%, paying off that debt essentially offers a 20% return on your money. It also provides financial freedom in the future to fund other financial goals versus making a debt payment.
Determine Your Goals and Risk Tolerance
Every investor's situation is different. Before deciding how to invest 50k, take an honest look at your goals and risk tolerance. Take into account your age, the amount you've already invested, and whether you have a sufficient emergency fund, among a host of other factors.
- A younger investor — someone in their 20s or 30s, for example — has a long time until retirement. They can afford to take some added risk due to this long time horizon.
- On the other hand, if their goal is to buy a house within the next year, their risk tolerance would be considerably lower due to the shorter time before the money is needed.
Further Reading: What are Bear and Bull Markets?
Understand Which Kind of Investor You Are
Before deciding how to invest $50,000, it's important to understand which type of investor you are. For example, are you comfortable picking individual stocks to invest in? Or are you more comfortable using pooled investments like mutual funds or exchange-traded funds (ETFs)?
Or maybe investing is just plain scary to you. In this case, a professionally managed vehicle like a target-date fund might be the best option for you, or perhaps you might engage the services of a financial advisor, which might be a traditional advisor or perhaps a robo advisor.
Understand the Difference Between Passive and Active Investing
There are two main ways of investing: active and passive. With active investing, someone manages your portfolio for you. They take a hands-on approach to investing, buying, and selling stock as needed. Passive investing usually includes a mix of mutual funds or ETFs and thus is less complicated.
Passive investing using an index mutual fund or ETF can be a solid way to invest $50,000. An investor might choose just a few funds covering stock or bond indexes to easily build a well-diversified portfolio. Many index funds outperform their active peers, and the expenses are generally lower than with an actively managed fund.
There are a number of well-managed active funds as well. While it can be tough to select the best actively managed funds, they offer access to some of the best investment managers in the industry.
Active or passive doesn't have to be an either-or decision. Mixing passive and active funds together can be a good strategy as well.
Keep Your Investments Secured
As cyberattacks become more common, it's important for investors to take steps to secure their finances. Andwhile you should also use a broker or financial institution that has an encrypted website, we also recommend using a VPN like NordVPN.
A VPN helps keep your transactions secured by encrypting your data. This means that no one can view your purchases online. Having a VPN like ExpressVPN adds an extra layer of security and peace of mind.
Ten Ways to Invest $50,000
Depending on your situation, there are a number of solid options for investing $50,000. First, determine your financial needs and goals. Then decide where to put this money and which investment app to use. Here are ten ways to invest 50k:
1. Individual Stocks
Individual stocks represent an investment in a single company. Your gain or loss on the investment is determined by the performance of that company and its stock. If you invest in the next Apple or Amazon, you could earn a handsome profit. But if the company you invest in experiences financial difficulties, your investment could decline in value. Stocks offer the opportunity for capital gains through price appreciation and in some cases, dividend income as well. Dividends are generally paid quarterly.
You can invest in individual stocks and even fractional shares through a brokerage account like Stash Invest. With Stash, you can invest in stocks and ETFs, get personalized advice, and have a banking account, all for just $1 a month.
2. Real Estate
For those looking to invest in real estate, $50,000 may not be enough to purchase outright an investment property or place to live, but it can certainly be part of a down payment on a property.
Another option to invest in real estate is a REIT, or real estate investment trust. REITs are usually publicly traded like stocks on the stock exchange, but some REITs are privately traded. REIT investments include office buildings, retail space, residential properties, mortgages, or some combination of these. There are also mutual funds and ETFs that invest in REITs. Streitwise, for example, opens up the opportunity for almost anyone with just $1,000 to invest in private real estate deals. And with Fundrise you can invest in commercial real estate through REITs with as little as $500.
Another way to invest in real estate is through crowdfunding platforms. Real estate crowdfunding allows small investors the opportunity to buy into a property deal as a shareholder. Non-accredited investors used to be shut out from these private equity real estate deals, but with the advent of crowdfunding, many of these deals are now available for as little as $5,000. As with any investment, do your homework before investing. Research the underlying property and the sponsors of the crowdfunding platform.
We think one of the best crowdfunding platforms are Crowdstreet, which allows you to invest in commercial real estate for free (all the fees are paid by the sponsors) and offers only commercial real estate.
3. Individual Bonds
Bonds are debt instruments. Basically, the investor makes a loan to a borrower in return for periodic interest payments and then the bond's face value when the bond matures. Bonds come in several varieties including:
- Treasury securities — Treasuries come in several maturities and are considered a risk-free asset because they are backed by the U.S. Treasury.
- Corporate bonds — Various corporations issue these. Their security is in part based on the financial state of the issuer and their ability to make interest payments and to redeem the bonds when they mature.
- Municipal bonds — Munis are issued by state and local governmental entities. Interest on these bonds is generally exempt from federal taxes.
4. Mutual Funds
Mutual funds pool investors' money to invest in a strategy or asset class. This might be stocks or bonds, or sub-asset classes within these broad categories. Mutual funds are usually the investment of choice in 401(k) plans.
The mutual fund might be a passive index fund that tracks a market index like the S&P 500. Index funds are usually low-cost funds. Mutual funds can also be actively managed. With these, the manager makes active decisions as to the securities held by the fund. These funds generally carry a higher expense ratio than an index fund.
ETFs, or exchange-traded funds, are much like mutual funds, but they trade like stocks. Many ETFs are index funds and generally have low expense ratios. Their holdings are transparent on a daily basis. Mutual funds, on the other hand, report holdings only a couple of times a year. We recommend using Public.com , which is a commission-free stock and ETF trading app for iOS and Android. The app supports fractional share investing in stocks and ETFs and has a sharing feature to celebrate your success with your friends.
6. Invest with a Robo Advisor
One of the easiest ways to start investing is with a robo advisor. A robo advisor is a relatively new investment product. Essentially, they invest in a variety of ETFs on your behalf, based on your unique needs and risk tolerance. Some will even rebalance for you, so you truly can sit back and let your money work for you.
The best part about robo advisors is their low cost. Most cost around 0.20% annually, while Vanguard Digital Advisor®, has a net target annual net advisory fee of only 0.15%. And with Vanguard's robo advisor, you can invest directly into their ETF products, such as Vanguard Total Stock Market ETF and Vanguard Total Bond Market ETF.
CDs, or certificates of deposit, are FDIC-insured savings vehicles that generally run for a set term, such as six months, a year, two years, or more. Leave your money in the CD for the stated term; otherwise, there are generally early withdrawal penalties.
One strategy with CDs is to ladder the maturities so you always have one coming due at some interval that makes sense for you, such as every six months. Banks and other financial institutions often offer CDs. Some brokerage firms also offer them.
8. Invest in Your Retirement
- IRA contributions: For 2020 the annual limit for IRA contributions is $6,000, with an extra $1,000 in catch-up contributions for those who are age 50 or over. You may be able to contribute to an IRA if your income is below the threshold.
- Employer-sponsored 401(k): You can use your 50k to contribute the maximum amount to your 401(k) or other employer-sponsored retirement accounts. This increases the amount you save for retirement. And it helps ensure that you receive the full employer match if one is offered. The contribution limit for 2020 is $19,500, with a $6,500 catch-up contribution available to those who are 50 or older. Read more about how to invest your 401(k).
9. Taxable Investment Accounts
Depending on your circumstances it could make sense to open a taxable brokerage account or an account with a mutual fund company. These accounts offer a level of diversification for those who have sufficient investments in retirement accounts. The funds are also more liquid if they are needed. Investments held in an IRA or other type of retirement account could be subject to taxes plus a 10% fine if funds are withdrawn before the age of 59½.
And to make sure you'll have enough to retire, check out CountAbout. With CountAbout's FIRE widget you can track your monthly expenses along with any potential passive income and plot them over time.
10. 529 College Savings Plan
Using some or all of the $50,000 to fund a 529 college savings plan for your children can be a great investment in their future. These plans can be used to pay the cost of tuition, housing, books, and a host of other college expenses. Many states offer additional tax incentives for residents of that state.
Investments offered by each plan vary. And many plans offer an age-based option that changes the investment mix as the beneficiary gets closer to age 18. Mutual funds or similar investments are also generally available.
Bottom Line: There Are Many Ways to Invest $50,000
If you are fortunate enough to have an extra 50k to invest, there are a number of options to consider. The right answer will depend upon your financial situation and your own financial priorities.
Whether you are a new investor or an experienced one, use any lump sums to enhance your overall financial position. This could include adding to your long-term investment holdings or funding an emergency fund. Every investor should take full advantage of any extra money.
Vanguard Disclosure – Vanguard Digital Advisor® services are provided by Vanguard Advisers, Inc. (“VAI”), a federally registered investment advisor. VAI is a subsidiary of VGI and an affiliate of VMC. Neither VAI nor its affiliates guarantee profits or protection from losses.
Vanguard Digital Advisor is an all-digital service that targets an annual net advisory fee of 0.15% across your enrolled accounts, although your actual fee will vary depending on the specific holdings in each enrolled account. To reach this target, Vanguard Digital Advisor starts with a 0.20% annual gross advisory fee to manage Vanguard Brokerage Accounts. However, we’ll credit you for the revenues that The Vanguard Group, Inc. (“VGI”), or its affiliates receive from the securities in your managed portfolio by Digital Advisor (i.e., at least that portion of the expense ratios of the Vanguard funds held in your portfolio that VGI or its affiliates receive). Your net advisory fee can also vary by enrolled account type. The combined annual cost of Vanguard Digital Advisor’s annual net advisory fee plus the expense ratios charged by the Vanguard funds in your managed portfolio will be 0.20% for Vanguard Brokerage Accounts. For more information, please review Form CRS and the Vanguard Digital Advisor brochure.