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How to invest $10k

Put that $10k to work with these top five investment picks.

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Do you have $10k burning a hole in your wallet? Here are five ways you can invest it wisely.

Invest in a Roth IRA

Consider opening a Roth IRA if saving for retirement is one of your investing goals. There are many benefits to this popular retirement account.

Pros

  • Tax-free growth and withdrawals. You don’t pay a single penny in taxes when you withdraw money from your Roth IRA.
  • Use funds before age 59 and a half. You can withdraw your principal balance at any time and pay for certain qualifying expenses, such as buying your first home or paying for college, without penalty.
  • More investing options. A Roth IRA lets you invest in whatever you want, including stocks, bonds, index funds, real estate, gold, silver and more.

Cons

  • Must open account yourself. As opposed to employer-sponsored plans, you’re responsible for finding a brokerage, setting up your account and funding it.
  • Funded with after-tax dollars. You pay taxes on your Roth IRA contributions upfront, but you’ll reap the benefits later on when you make tax-free withdrawals.
  • Contribution limits. The maximum contribution limits for 2020 are $6,000 or $7,000 if you’re at least 50 years old.
  • Income restriction. You may not be eligible for a Roth IRA if you make over $196,000 and your tax status is married and filing jointly or $124,000 if your status is single, head of household or married and filing separately.

Invest in an HSA

If you have a high deductible healthcare plan, consider maxing out your health savings account (HSA) with part of your $10k.

Pros

  • Completely tax free. You contribute to an HSA with tax-free money and you can deduct your contribution from your taxes and withdraw the money tax-free.
  • Multiple uses. You can use an HSA to pay for qualifying medical expenses now or you can use it to pay for anything you’d like after age 65.
  • Potential employer match. Some employers match HSA contributions the same as they do 401(k) contributions. If your employer offers a match, this is free money in your pocket.

Cons

  • Contribution limits. For 2020, you can contribute $3,550 for individual plans and $7,100 for family plans. If you’re over age 55, you can contribute an additional $1,000.
  • Must have a qualifying healthcare plan. You’ll need to enroll in a high deductible healthcare plan to qualify for HSA contributions.
  • Could pay penalties. If you’re younger than 65 and use your HSA for non-medical expenses, you’ll pay a 20% penalty to the IRS.

Invest in a taxable investment account

If you want to invest in the stock market, consider opening a taxable investment account with an online discount broker.

Pros

  • Flexibility. You have full control over your portfolio, so you can invest however you want.
  • Variety. Major brokers offer a variety of securities including stocks, mutual funds, bonds, ETFs, REITs, options and more.
  • Low cost. It may require some research, but many major online brokers offer low fees.

Cons

  • Can be risky. You’re in control of your investments, but this could work against you if you’re inexperienced.
  • Watch out for fees. Many brokers have adopted a commission-free model but some still charge hefty fees.
  • Could have high minimums. Watch out for brokers who have minimum deposits above the $10k threshold.

Invest in bonds

If you have any big expenses coming up you may want to play it safe by investing your money in bonds. Terms typically range from a few months to 30 years.

Pros

  • Low risk. Bonds carry less risk than other securities and are considered stable investments.
  • Tax efficient. If you invest in local, state or federal bonds, you typically won’t pay any federal taxes on any interest you earn.
  • Produces passive income. Bonds provide investors with a steady income stream and offer higher returns than other safe investments like savings accounts.

Cons

  • Risk varies by bond type. Before you buy a bond, check and see what letter grade it was assigned by the credit rating agencies. The higher the letter grade, the safer it is.
  • Could lose money. If the issuing entity defaults or you sell your bond when interest rates are higher, you could lose money on your investment.
  • High investment minimums. Most bonds start out at $1,000, although some are higher or lower.

Invest in peer-to-peer lending

Extend a helping hand to people in need with peer-to-peer lending.

Pros

  • Generates passive income. You’ll receive recurring income as borrowers pay back their loans.
  • Profitable returns. Through peer-to-peer lending, some investors have seen returns above 6%, according to a 2018 Forbes article.
  • Easy to get started. If you’re new to the world of investing, getting started with peer-to-peer lending is much easier than actively investing in the stock market.

Cons

  • Risk of default. You could lose your investment if a borrower quits paying and defaults on their loan. But you can mitigate risk by spreading your money across multiple loans.
  • Loans aren’t secured. The government doesn’t require borrowers to back their loans with collateral.
  • Can’t sell your loan. Once you commit to funding a loan, you can’t get out of it by selling it to someone else.

How to build a $10k investment portfolio

How you should invest $10k depends on a host of things: your age, goals and risk tolerance. You’ll need to have a clear picture of these to build a $10k portfolio.

If you’re in your early 30s and want a long-term portfolio focused on growth, here’s what it might look like:

Investment type Percentage
CDs and bonds 0 to 15%
Stocks, ETFs and mutual funds 70% to 90%
Real estate and alternative investments 0 to 25%

Before you invest $10k

Before you throw your $10k into investments, consider tackling these common financial tasks:

  • Pay off high-interest debt. If you have any credit card debt or personal loans, pay these off first. They often have interest rates higher than what you’d earn in any investment vehicle, so you’ll come out ahead if you pay them down.
  • Beef up your emergency fund. Keep three to six months worth of bare-bones expenses in a high-yield savings account where you can have instant access to it in an emergency.
  • Create a vacation or holiday fund. If vacation or holiday expenses tend to creep up on you every year, consider setting aside part of your $10k to cover these expenses. Keep this money in a high-yield savings account the same as you would your emergency fund.

Compare investing options

Name Product Stock trade fee Asset types Option trade fee Annual fee
Vanguard
$0
Stocks, Mutual funds, ETFs, Forex
$1
$20 per year
Get a personal advisor when you open an account with at least $50,000.
Sofi Invest
$0
Stocks, ETFs, Cryptocurrency
N/A
0%
A free way to invest in stocks, ETFs and crypto.
Robinhood
$0
Stocks, Options, ETFs, Cryptocurrency
$0
0%
Make unlimited commission-free trades in stocks, funds, and options with Robinhood Financial.
Interactive Brokers
$0
Stocks, Bonds, Options, Mutual funds, Index funds, ETFs, Futures, Cash
$0 + $0.65/contract, $1 minimum
0%
IBKR Lite offers $0 commissions, and IBKR Pro offers advanced tools for professional traders.
TD Ameritrade
$0
or $25 broker-assisted
Stocks
$0 + $0.65/contract,
or $25 broker-assisted
TD Ameritrade features $0 commission for online stock, but watch out for high short-term ETF and broker-assisted trading fees.
Moomoo
$0 for US stocks
Stocks, Options, ETFs
$0
Trade stocks on the US, Hong Kong, Shanghai and Shenzhen markets.
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Compare up to 4 providers

Name Product Minimum deposit to open Available asset types Annual fee
SoFi automated investing
$1
Stocks, ETFs
0%
Put your money to work. Pay zero SoFi management fees.
Acorns
$0
Stocks,Bonds,ETFs
$1 per month
Invest your spare change. Anyone can grow wealth.
Betterment
$0
Stocks,Mutual funds,ETFs,Real estate
0.25% on balances up to $99,999

0.4% on balances of $100,000+
Betterment's automatic investment site aims to improve your returns and support good financial habits with passive investing and financial planning support.
Blooom
Stocks
$45 per year
After an analysis, Blooom will place the trades within your 401k, 403b, 401a, 457 or TSP plan account for a low flat fee.
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Compare up to 4 providers

Bottom line

There are different ways you could invest $10. Whatever you choose, make sure your investments align with your needs. Weigh the pros and cons and nail down which investments will help you accomplish your goals. Then, shop around for top-rated investment accounts until you find one that suits you.

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