Best Ways to Invest $50,000
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Have $50,000 to invest? Here are 10+ smart investment ideas to turn $50k into even bigger money.
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Congratulations! $50,000 is a good chunk of change. Now, what to do with it?
You have a lot of options. Honestly, it's overwhelming.
But don't let it freeze you up and stop you from making a move. Missing out on years of growth is a big mistake.
And once you start, it won't be so scary. Check out this list of ideas to get started (plus 3 investments to avoid).
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What to Do Before Investing
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Before you learn how to invest your money, first make sure you're on solid footing.
Ask yourself these two fundamental questions:
- Is my debt managed?
- Am I on track for retirement?
- Have I set my investment goals?
If your answer to all is "no," here are the steps you'll need to take before you invest.
Paying Down Debts
If you have a lot of personal debt, most experts recommend that you pay it down before you start investing.
While it may not seem as exciting as investing, paying down debt is healthier for your finances in the long-run.
For example, say you can get a 5% rate of return on your investment portfolio, but you have $30,000 in credit card debt with a 23% APR. If you invest in that portfolio instead of putting those funds toward your credit card debt, you'd be losing money.
Some lower-interest installment debt, like an auto loan or a home mortgage, is considered OK. This is because debt like auto loans and mortgages has a fixed timeline for repayment.
By investing, you may be able to match (or even beat) the interest you are paying on your "healthier" installment debt. Essentially, you can still hold some debt while making money. With high-interest revolving debt (like credit cards), you are more likely to keep losing money even if you start investing.
If you have over $10,000 in debt, debt relief companies such as National Debt Relief may help.
Have a Plan for Retirement
If your debt is under control, then consider whether you're on track to meet retirement goals.
First, make sure you enroll in any 401(k) plan that is available from your employer. Then, find out how much of your contribution your company will match. Contribute at least up to the matching amount—otherwise, you'd be turning down free money.
The amount you contribute to a traditional 401(k) will be deducted from your taxable income.
Even if your company doesn't match, consider contributing the maximum amount before you invest your money elsewhere. That will give your retirement savings a boost and lower your taxable income.
You may also want to consider opening a traditional IRA or Roth IRA to supplement your long-term retirement savings. Like a 401(k), these accounts also have tax advantages. For 2023, you can contribute up to $6,500 per year, or $7,500 if you are over 50.[1]
Traditional IRAs allow you to deduct your contribution from your annual taxable income. Roth IRAs won't let you deduct that amount, but you will be able to withdraw the funds tax-free.
Consider Risk Tolerance & Asset Allocation
Setting your investment goals is one of the most important things you can do before putting any money down. It'll guide you along your journey and keep you on the path to returns.
Two of the most important things you need to consider are your risk tolerance and asset allocation strategy.
Risk tolerance refers to how much of your money you're willing to risk in order to gain from your investments. Determine your risk tolerance by considering how old you are, how long you plan to invest, what your financial goals are, and how cautious you'd like to be. Some investors have a lower risk tolerance than others.
Generally, investors have three different approaches when it comes to risk tolerance:
- Aggressive - An aggressive investor is one with a high risk tolerance. This means you're willing to risk losing money to potentially get better results.
- Moderate - These types of investors want to grow their money, but aren't willing to lose too much. A moderate approach means taking a balanced approach, weighing opportunities and risks at the same time.
- Conservative - A conservative investor would prefer little to no volatility in their investments. This means targeting vehicles that are guaranteed and highly liquid.
Asset allocation asks how you want to split up your portfolio among equities, fixed income, and cash/cash equivalents. Each of these asset classes will have different risks and return potentials, so each investor will probably have a different strategy for asset allocation.
Yes. Diversification can help you minimize risks and mitigate losses when the economy is experiencing volatility or uncertainty. Different types of investments will perform differently at different times depending on their specific market conditions.
How to Invest $50,000
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If your debt is under control, your retirement plan is on track, and your investment goals are set, you can explore ways to invest your $50,000.
Here are several ways you could do so.
The safest way to invest $50,000 would be low-risk options such as high-yield savings accounts, CDs, or bonds. Which is best for you will depend on your goals, risk tolerance, and time horizon. Just note that these low-risk options probably won't generate returns as high as investment options with higher risk.
Online Savings Account
Online savings accounts can offer rates as much as 10x higher than traditional bank accounts.
Investing $50,000 is simple and easy with an online savings account. Simply open an account online, fund it, and watch your money grow over time. It's safe and low-risk.
The only drawback is that it'll be a long while before you see big returns with your money.
Before opening an account, make sure that the FDIC insures the account and read the fine print regarding any fees. Also, be sure to check for any account minimums they may require.
Risk level: Low
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If you're investing for a near-term goal, safer investments like bonds, high-yield savings accounts, or CDs may be better. If you're in it for the long run, you could go with options like the stock or real estate markets. Ultimately, it depends on your financial goals, risk tolerance, and time horizon.
Certificate of Deposit
If you are looking for a risk-free investment with decent returns, consider investing your $50,000 in CDs.
With CDs, the longer you invest the money, the higher the APY (Annual Percentage Yield). Also, the higher the account minimum required, usually the higher the APY.
Just remember that you won't be able to access your money while it's in the CD. Early withdrawals could cost you a big chunk of your deposit.
Risk level: Low
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High-Yield CD Rates - Up to 4.05% APY
- No fees
- $1 minimum deposit
- FDIC insured
| Term | CD Rates |
|---|---|
| 3 Month | 4.05% APY |
| 5 Month | 3.85% APY |
| 6 Month | 3.75% APY |
| 9 Month | 3.00% APY |
| 12 Month | 3.00% APY |
It depends on how you invest your money and what you like to invest in. For example, a high-yield savings account with 2% APY could earn you $1,000 after a year. 8% returns in the stock market would get you around $4,000.
Stocks
These days, you don't need a stockbroker to trade stocks. Instead, you can use an online brokerage account, such as E*TRADE, among many others. Choose a company offering a simple interface and resources for new investors.
Once you choose an online broker, create your account and fund it with your desired starting investment. Before choosing your stocks, create a plan for yourself and understand how much you can afford to lose.
Now you're ready to invest. Read financial news, stock performance histories, and professional forecasts to pick a few stocks.
Try to choose ones that match your risk tolerance. Hold off on investing a lot until you have a good handle on the process.
Risk level: Moderate to high
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Mutual Funds or ETFs
Rather than investing in one company, as with stocks, mutual funds and ETFs diversify among stocks, bonds, and other short-term investments. With these funds, you can invest in many securities all at once.
First, choose a brokerage. Charles Schwab, Vanguard, and Fidelity are among the most popular brokerage firms (see How to Invest Money for more information).
Longer-term goals, such as retirement, usually benefit from broader market index funds. These funds mimic a specific index, such as the S&P 500, and offer diversification and a long-term investment strategy.
The returns on index funds closely mimic market returns, which have ups and downs but have historically provided gains. They require very little management and often have lower fees.
Risk level: Moderate
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Bonds
Buying a bond is basically buying debt and collecting the interest and principal. You can invest in bonds like you would invest in stocks.
There are three common types of bonds:
- Corporate, which are offered by corporations looking to raise capital
- Municipal, which are issued by towns, cities, and states to fund public projects
- Treasury (T-bonds), which can be purchased directly from the U.S. government
As with any investment, bonds do carry some risk, even though the risk is very low. For example, your bond could default.
A bond can also lose value when interest rates rise. This means that if you choose to sell a bond before its maturity date, you could make less than the price you paid for it.
Generally, bonds must be purchased through a broker. However, T-bonds can be bought directly from the government.
Risk level: Moderate
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Start Your Own Business
If you are tired of the 9-to-5 grind, investing $50,000 in your own business could be your chance to break free. Just be sure you have a solid business plan.
Unless you have a lot of experience in the industry, make sure you get all the help you need to succeed. We recommend visiting the Small Business Administration's website for advice on how to get started. They offer many resources and steps for beginners and even the experienced business owner.
Risk level: High
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Financial Advisors
If you aren't confident enough to make these investment decisions yourself, you could always hire a financial advisor to help you out. Many people think you need to be wealthy to benefit from a financial advisor, but that's hardly the case.
Financial advisors can help you execute trades in the market on your behalf. They can also use their knowledge and expertise to help you build a financial plan that aim to achieve your financial goals. This includes savings, budget, insurance, and even tax strategies.
They'll check in with you on a regular basis, evaluate your current situation, and plan accordingly.
How much you can earn with a financial advisor onboard will mostly depend on their expertise level and how much they charge.
Risk level: Low to Moderate
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Robo Advisors
Robo advisors are digital platforms that provide automated investment solutions, cutting out human supervision as much as possible.
When you sign up, these platforms will often provide a questionnaire that'll calculate your risk tolerance and create a financial plan based on your answers. From there, it'll either show you a list of assets (usually ETFs) to invest in or directly invest the money you deposit for you.
The amount of human oversight will vary per platform. Some are completely automated and some have professional human oversight, where financial advisors will periodically monitor your account and make changes.
Since all robo advisors deal with a certain level of automation, they're often low cost and very beginner-friendly.
Risk level: Moderate
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Cryptocurrencies
The stories of people becoming crypto-millionaires overnight are hard to ignore. Cryptocurrencies saw a big boom in 2021 after Bitcoin (BTC) hit its all time high of around $69,000. Since then, people have been investing, hoping it could see another price spike in the future.
However, what makes cryptocurrencies so intriguing to investors could also be what makes it incredibly risky. Cryptocurrencies are volatile, meaning their price could be really high one day and then really low the next.
Before investing in cryptocurrency, make sure to assess your risk tolerance and not put down any money you aren't willing to lose.
Risk level: High
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Real Estate Investing
$50,000 may not be enough to purchase an entire property outright. But you can still invest in real estate through real estate crowdfunding platforms.
You earn profits through the rental income collected and when the property appreciates in value.
Fundrise is a good option if you want the platform to automatically build a real estate portfolio for you. They'll invest your funds in a variety of residential, commercial, and industrial projects. From 2017 to 2022, Fundrise's annualized returns ranged from 1.50% - 22.99%.[2]
Alternatively, Crowdstreet is good if you want to choose your own properties. Crowdstreet focuses on high quality commercial real estate deals. So far, it's had a very strong annualized IRR of 16.7%.[3] Note that this platform is only open to accredited investors.
Risk level: Moderate to high
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Alternative Assets
An alternative asset is one that doesn't fall into one of the conventional investment categories (stocks, bonds, cash, etc.). This include private equity or venture capital, hedge funds, collectibles, commodities, and more.
More often than not, these alternative investments will have fewer regulations from the SEC. However, that makes them less liquid compared to traditional investments.
Platforms like Public allow you to invest in these types of assets easily. They have assets like rare sneaker collections, pieces from artists like Banksy, trading cards, and more.
Risk level: High
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Artwork
Whether you're a fan of the craft or are looking to put your money into something valuable, fine art can be a good investment for you. It's a way for you to invest in tangible assets, with some even having a great potential for appreciation.
It could also be a great way for you to diversify your portfolio. This means that if you invest in artwork, you could gain exposure to a completely different asset class that has little to no correlation to traditional financial markets.
Just remember that artwork is considered to be an alternative investment. This means they're harder to under and analyze compared to more common assets because they come with risks that more traditional investments don't have.
Risk level: High
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What Experts Say
As part of our series on saving and investing, CreditDonkey assembled a panel of industry experts to answer readers' most pressing questions.
Here's what they said:
3 Investments to Avoid
Some types of "investments" aren't really investments at all. In fact, you could easily lose your $50,000 if you put it into a risky scheme.
Here are some examples of what to avoid when learning how to invest $50,000:
- Penny Stocks
Stocks that you can buy for less than $5 may seem like a great deal. After all, with $50,000 you could buy a lot of shares.But more often than not, they're not profitable at all. Companies that offer penny stocks are usually very small and don't need to disclose their financials. They may be trying to raise capital to grow, but they're not always successful in the long run.
- Pyramid Schemes
You may have heard of businesses that promise to make you rich if you can recruit others to join them.If you're asked to pay to join a business with that type of model, be aware that it may be a pyramid scheme, which rarely results in a win-win situation for everyone.
- Gambling
Yes, you could possibly win big gambling $50,000, but people rarely do. Statistically, you are much more likely to lose your money when you gamble.That's true whether you are playing in a casino or buying a lottery ticket. The odds are not in your favor, so, while gambling may be entertaining, it's a poor investment choice.
Bottom Line
You have a variety of choices for how to invest $50,000, from investing in the stock market to launching your own business. Weigh the pros and cons of each method of investing we described above to find the best one for you.
Remember to review your finances to make sure you are in the best position to start investing. And be aware of promising risky investments like penny stocks and pyramid schemes that may not be what they seem.
The bottom line is, the sooner you can start investing your funds in a safe way, the more you can benefit from the rewards of your investment.
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References
- ^ IRS. 401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500, Retrieved 12/29/2023
- ^ Fundrise. Explore client performance over time, Retrieved 02/23/2024
- ^ Crowdstreet, Marketplace Performance, Retrieved 4/25/2023
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