If you have $20K sitting in the bank, congratulations! You might be wondering how to take that pile of cash and turn it into even more money. Here are 5 ways to maximize returns on a $20K investment.
How to build a $20K investment portfolio
Your investment portfolio is a reflection of your financial goals. You could invest in stocks if you won’t need the $20K for another 10 years, but stocks are higher risk – with potentially higher returns.
If you’ll need the money in 3 years, you may consider a less risky investment type with modest returns, such as a GIC or bond.
Here’s one example of how a $20,000 portfolio might look if you’re aiming for higher returns over a longer period of time:
Investment type
Percentage
GICs and bonds
0 to 40%
Stocks, ETFs and mutual funds
50% to 75%
Real estate and alternative investments
0 to 25%
Before you invest $20K
Before you invest $20K, make sure you have the following in place:
Emergency fund. Ideally, you’ll keep 3-6 months of expenses in a high-yield savings account. Depending on your cost of living, this could be a small or large portion of your $20K.
No high-interest debt. Paying off debt before you invest means you won’t have sky-high interest payments eating into your investment returns.
Kids’ education fund. If you have children, you may consider setting aside a portion of the $20K for their college education.
Tax-deferred growth. You fund an RRSP with pre-tax money, so it can grow in the account without being subject to tax.
Use funds to buy your first home. You can withdraw funds before you turn 71 for qualifying expenses, such as your first home (through the Home Buyers’ Plan) or certain educational expenses (through the Lifelong Learning Plan).
Cons
Can’t use funds until retirement. You’ll pay a penalty if you withdraw RRSP funds before you’re 71.
Limited investment options. RRSP plans use simple investment vehicles like stocks, bonds and mutual funds.
Not the best option for low-earners. If you think you’ll be earning more later on in life, you’ll want to max out your TFSA before you start investing in an RRSP in order to minimize your taxes when you eventually withdraw.
Investments that can be held in an RRSP
RRSPs are designed to hold certain types of assets including:
Mutual Funds
Exchange-Traded Funds
Stocks
Bonds
Guaranteed Investment Certificates
Income Trusts
Mortgage Loans
Foreign Currency
Labour-Sponsored Funds
Invest in the stock market yourself
If you’re comfortable being a hands-on investor, $20K is more than enough to get started with an online broker.
Pros
Variety. Many brokers offer stocks, mutual funds, bonds, ETFs and options.
Self-directed. You have full control to invest however you want.
Help when you need it. Many top online brokers offer investment advice in the form of extensive research centers, in-person support and automated investment strategies.
Cons
Potential mistakes. You could make costly mistakes with your $20K if you don’t have a lot of investing experience.
Fees. Many online brokers are moving toward a commission-free model, but there are still some that charge hefty trade commissions.
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Invest with a robo advisor
$20,000 is a lot of money, so if you’d like some guidance on how to invest it, a robo advisor may be a good alternative to a traditional adviser.
Pros
Inexpensive. Required fees and investment minimums are much lower than with a traditional financial adviser.
Goals-based investing. Robo-advisors make algorithmic recommendations based on your goals, risk tolerance and investing timeline.
Requires minimal time or effort. Robo-advisors keep your portfolio in tip-top shape by performing routine tax-loss harvesting and automatic rebalancing.
Cons
Limited flexibility. You typically can’t choose your own investments.
Not entirely personalized. Robo-advisors give advice based on the questions they ask you. But they can’t ask follow-up questions if your situation is unique.
Managed by a computer. If you prefer face-to-face discussions about investing, this may not be the best option.
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Invest in real estate
There are several ways you could invest in real estate with $20K. You could go through a company like Wealthsimple to purchase real estate investment trusts (REITs) through an exchange traded fund (ETD). Alternatively, you could connect with commercial property developers through a peer-to-peer lending platform like Lending Loop, or put a downpayment on a house and rent it out yourself.
Passive income. Real estate is an attractive investment because it produces a steady flow of income.
Plenty of options. With $50k, you can choose to invest in REITs, commercial properties or your own property.
Safe options. If you want to invest in real estate in the safest way possible, you can purchase REITs, which are made up of hundreds of different properties and trade like stocks.
Cons
May need accreditation. Some crowdfunding sites won’t let you directly invest in real estate without qualifying as an accredited investor.
Possible risk of default. If you choose to invest in a single property, you could lose your money if it defaults.
Illiquid investment. Real estate can’t be easily sold or converted to cash, so it may not be a good option if you’ll need your money soon.
Lucrative returns. The average investor earns between 5% and 9% interest with P2P lending.
Steady cash flow. You’ll receive steady monthly income as the borrower repays their loan.
You’re helping someone in need. Most P2P investors enjoy lending money to help someone who needs it more than they do.
Cons
Risk of default. There’s a chance you could lose your money if someone defaults on their loan.
P2P lending is new. This industry has only been around since the Great Recession, so it’s hard to tell how it will do during the next economic downturn.
Unsecured loans. Often, borrowers don’t put up collateral for the loans, so there’s a slim chance you’ll get your money back if something happens.
Bottom line
There are a lot of different ways you can invest $20K. Your best option depends on your current financial situation and goals.
Prioritize paying off high-interest debt and establishing an emergency fund first. Then narrow down your top picks and the different types of investment accounts available to you, and start comparing top investment accounts for your strategy.
Frequently asked questions
Possibly. It depends on your contribution room for the year – any deposits you make beyond this amount are not tax deductible. Check tax Form T1028 to see what your RRSP information is for the year.
This depends on your tolerance for risk, your experience with investing, and how involved you want to be in your investments, among other things. These factors will inform your investment strategy. Since $20K is a decent chunk of change, you may also be able to use more than one strategy. For instance, you could try your hand at investing half of the funds yourself, and leave the other half with a robo advisor. You could max our your RRSP and choose to invest any remaining funds yourself in an online trading account. Your best strategy is the one that best meets your goals.
Potentially. If you have an idea for a successful company, $20K may be enough seed money to get started. But starting a business is extremely risky, so weigh the pros and cons before you decide. If you decide to move ahead with your business plan but need more money to get started, check out our guide on business loans for startups.
If you want to invest in REITs, find a broker like TD Direct Investing that can help you open an investing account and start sifting through your options. If you want to invest directly in real estate, check out Lending Loop, a peer-to-peer lending platform that connects borrowers with investors and vice versa.
You can even take a look at a crowdfunding platform like FrontFundr that advertises investment opportunities (including real estate projects) to solicit funds from members of the public. To be on the FrontFundr platform, all business have to pass a highly rigorous screening process.
There are several established peer-to-peer lending sites like Lending Loop, Mintos or, for real estate, ReInvest24. Compare your options, and learn how you can benefit from being an investor.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Cassidy Horton is a freelance personal finance copywriter and past contributing writer for Finder. Her writing and banking expertise have been featured in Forbes Advisor, Money, The Balance, Money Under 30, Insure.com, and other top digital publishers. She holds a BS in public relations and an MBA from Georgia Southern University.
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