7 Ways to Invest $10,000
vemuda.com - $10,000 is undoubtedly a lot of money, but I have a question for you. If I were to give you this much money today, what will you do with it?
Will you book for yourself a luxurious vacation in the Bahamas?
Or are you thinking of buying an expensive watch, or bag?
Or maybe, are you thinking of upgrade the car you are currently driving for a much better one?
Whatever it is, I’m sure it’s quite pricy. I’m actually quite interested so comment below what you would do with it if some handed you $10,000 today.
If you were planning on spending all that money doing something like I mentioned before, like going on vacation or buying new things, then let me enlighten you on what I think is the best use of all that money.
Instead of squandering all that money on fancy new things, and consumer products that we all know will only satisfy you for a short while, you should instead consider investing the money. And so in today’s post, I’m going to share you places where you can invest $10,000.
First of all, $10,000 is a large amount of money that could potentially grow even bigger or make a huge difference in a person’s life in the future, if invested wisely. So let’s not mess this up.
So first, let’s start with one of the most boring, but practical, and probably the safest option on where to invest the money.
That would be on setting up an emergency fund. And yeah I know, setting up an emergency fund is no fun, but it could potentially be a lifesaver, especially in bad economic seasons.
Emergency funds are the savings you have in case of a “rainy day”, or if things go seriously wrong and you need to some quick money.
Usually, a safe bet is to keep somewhere between 3 to 6 months equivalent of your current expenditures.
In case, you lose your job, or your business shuts down, this money will be used, instead of you getting loans and going into debt.
Remember, paying high-interest rates on your loans is very crippling and can financially strangle any person.
So, having an emergency fund on the sidelines could act as an insurance policy and could potentially save you a lot of money should an emergency happen. Ideally, you would want to keep the fund as liquid as possible.
I will recommend that you keep it in a savings accounts or invest in short term treasury bills that mature every 3 months.
Again, to reiterate, the point is to keep the money as liquid as possible, so that you can convert it into cash at a moment’s notice.
Another interesting thing that you could do with the $10,000 is to pay any high-interest debt that you currently have.
For instance, you may have an outstanding credit card loan with a yearly interest rate
of 20%. You should consider paying this as soon as possible.
The way you make money on this is that a high interest-bearing debt is costing you money and if you pay it off, you will save that money. Of course, not all debt is bad.
If you have taken out a mortgage for your home at just 1% interest, that is actually a pretty good deal.
You aren’t paying that much in interest, and yet you are successfully creating a future asset for yourself. Kudos to you!
Once you have set up an emergency fund for yourself and paid off that high bearing debt, now you can think of investing it in your retirement accounts.
We will be going over 3 main retirement accounts – the Roth IRA, the 401K and the HSA. The Roth IRA is the account in which you can make after tax contributions and then let it grow until you reach the age of 59 and a half.
The advantage of this account is that it will grow completely tax-free. You can contribute $6000 if you are less than 50 years old and $7000 if you are above 50.
So, if you have invested $1000 and it grows to $10,000 by the time you reach 59 and a-half years old, that $9000 profit would be completely tax-free. The 401k, on the other hand, is a more traditional retirement account.
Contributions that you make every period in it, is completely tax-free, but once you retire and go to cash your savings; you will be liable to pay taxes on the entire amount.
I don’t really like the 401k all that much because you tend to pay more tax right in the end, and on a larger sum of capital as compared to the Roth IRA.
The only situation in which I would prefer the 401k over the Roth IRA is when your contribution in the 401k is matched by your employer.
That means if you invested $10,000 a year in your 401K, your employer would make the same contribution in your account as well.
However, there is a maximum contribution limit that your employer will specify. Any investment that you make over this limit will not be matched by your employer, so keep that in mind.
The third retirement account is called the Health Savings account (HSA). Both your contributions and your profits in this account are never taxed. It’s one of the most tax-advantaged plans out there currently in the world, yet it’s the least talked about.
You could say it’s a well-kept secret. The only catch is that the money you withdraw from this account can only be spent on health and medical services.
But considering, that we will all one day get old, and gray, and will probably have increased medical expenses, I recommend that you make some investments in this account as well.
Another investment avenue apart from retirement accounts is that of buying certificate of deposits (CD) or even Bonds for that matter.
These investments represent a fixed yield and low-risk investment. If you are looking to maximize your returns, you should go for the higher-yielding long term maturity bonds.
On average, they yield somewhere between 3% to 5%. Now, whether you want to go for this fixed return investment option will really depend on your investor profile.
Most older investors love the idea of a fixed return, whereas younger investors are looking to create wealth for themselves and so prefer other riskier investment avenues instead.
This fifth investment option is for those of you who want to do something big with your $10,000.
If you’re thinking of creating a small fortune for yourself, but don’t want to invest in something too risky or crazy either, then you should consider investing in index funds.
Index funds tracks the overall market and they represent a smallholding in many stocks in multiple sectors.
It gives you a lot more diversification and a lot more growth long term as compared to certificate of deposits or bonds.
Investing in an index fund is what you may call a passive investment strategy and that is why it is a real cost-effective strategy for the investor as the fees are almost negligible.
Historically, the S&P 500 has given out a return of approximately 8% annually (assuming dividends are re-invested) which is by no means a low return.
Another advantage of an index fund is that it’s just easy. You don’t have to spend hours selecting an individual stock.
You don’t really need to time the market the way you would try to do when buying into individual stocks.
At the end of the day, all you need to do is to click a few buttons and buy a total return index fund. That’s it, you are done!
If investing in index funds is a bit too boring for you and you are interested in even higher returns, you might want to go for individual stocks.
Now all of us know that investing in individual stocks can by far be the riskiest assets to invest in, however, the potential returns can also potentially be the highest.
Buying individual stocks is the best strategy for you if you are 30 or below, since you have time to let your portfolios grow over a 20 to 30-year investment period, and thus capitalize on tremendous capital gains.
Young investors also have a greater risk appetite and so they are not that worried about potential market and price fluctuations that might hit them along the way.
If you have a knack for investing you should go for the option of buying individual stocks. I would recommend you buy individual stocks in your Roth IRA or 401k plans. That way you will also benefit from tax savings.
However, if you chose to open a free brokerage account instead, that’s also another option.
If you are good at picking stocks and you can be patient with them and don’t continuously worry about price fluctuations, then individual stocks are the way to go for you.
For me personally, I am much more happier investing in an index fund as I get my piece of mind there knowing my investments are a lot safer and less plagued by my irrational emotions.
I tried investing in individual stocks a few years ago. It just wasn’t for me as I found myself continuously watching the trading screen and rebalancing my portfolio which increased my costs.
I made my fair share of losses when investing in individual stocks before I finally decided to invest in index funds instead.
Maybe you will be able to exercise more rationality when dealing with individual stocks and avoid miscalculations derived from human emotions.
The last investment avenue that you can explore with the $10,000 investment is real estate.
Now, obviously, you would not be able to own a $100,000 value property or home with it, but maybe you can use the $10,000 as a down payment to secure a mortgage on the house.
If the value of the home goes up by 20% next year. That is a whopping 200% return on your investment. It is really that easy to leverage your investment in the real estate market.
Apart from investment in physical properties, you also have the option of investing in REITs or Real Estate Investment Trust.
They act like mutual funds where a pool of investors owns a certain property and rental income from that property is paid to them as dividends.
As the value of the underlying property increases, the value of the REIT units will also increase, and you will make a capital gain on it as per the proportion of your invested amount.
So there you have it guys. Those are my top 7 ways to invest your money. Really, it comes down to the investor and your risk appetite.
If you have the ability to bear more risk, then you can try individual stock investing or daily trading, you should probably also look into forex.
On the other hand, if you are more risk-averse like me, you can choose to split the $10,000 amount into multiple passive investment avenues such as Roth IRAs, index funds and real estate.
Whatever investment option you chose, know that you have consciously made the right choice to invest in your future income and which could potentially have huge returns in the future and you’re one step closer to attaining the dream of financial freedom.
Thank you guys so much for reading. With that said, I’ll see you in the next one.