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How to invest $20K

The stock market offers the highest variety of investment options, but there are other options to consider.

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Kliment Dukovski

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Holly Jennings
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How to invest $20,000 largely depends on your age, goals and personal finances. Based on past performance, we selected seven strong investment options to consider.

7 best ways to invest $20K right now

  1. Individual stocks
  2. Exchange-traded funds (ETFs)
  3. Retirement accounts
  4. Let a robo-advisor invest on your behalf
  5. Cryptocurrencies
  6. Alternative investments
  7. Real estate investment trusts (REITs)

1. Individual stocks

Traditionally, equities have outperformed other asset classes. So the sooner you invest your 20k — or part of it — to use on the stock market, the sooner you can reap the benefits.

Pros

  • Great performance. The average annual return of the S&P 500 index in the past 70 years is 10%. You can also invest in dividend stocks, where you earn an additional percentage on top of the stock’s performance. This is better than holding your money in a savings account
  • Variety of options. You can buy a range of stocks from Apple (AAPL) to Coca-Cola (KO) for as little as $5 with fractional shares.
  • High liquidity. This means you can buy or sell the stocks you want whenever you want without any limitations.

Cons

  • Volatility. Stocks are volatile. Over the long term, price fluctuations are just noise. But if you want to sell your funds from time to time, you may end up selling your shares at a lower price than what you bought them for.
  • Requires research. You can buy any blue chip stock, and you’re likely to be fine in the long run. But finding the new Facebook or Google in its infancy requires a lot of research.

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How $20,000 can grow

With $20,000, you should be thinking about the mix of investments you’re made, what else you own and if you’re taking too much or not enough risk. Here’s a look at how your money might grow in three common investment classes.

20,000 saved or investedSavings accountBondsStocks
1 year$20,200$21,200$22,000
5 years$21,020$26,765$32,210
10 years$22,092$35,817$51,875
15 years$23,219$47,931$83,545
20 years$24,404$64,143$134,550
25 years$25,649$85,837$216,694
30 years$26,957$114,870$348,988

For this table, we assumed:

  • A 1% annual return on a savings account, CD or money market fund — which is optimistic these days.
  • An average 6% return for bonds or bond funds.
  • 10% on stocks, the market’s long-term annual return.

Bond returns vary widely based on bond types, and the stock market has down years while individual stocks can go to zero. So consider these benchmarks only and consider risk as well as return.

2. Exchange-traded funds (ETFs)

ETFs come in all flavors — you can invest 20k in index funds — ETFs that match the moves of indices such as the S&P 500 or Nasdaq. Which ETF you choose depends on how close you are to retirement and how much risk you’re willing to take. In the past, index ETFs, blue chip ETFs and dividend ETFs have consistently performed well with relatively low risk, making them a good choice to invest in.

Pros

  • Variety of investment options. Some funds focus on particular sectors, like technology and healthcare, and there are bond ETFs, commodity ETFs, currency ETFs and more.
  • Trade like stocks. The beauty of ETFs is that you can buy and sell them whenever you want as long as the market is open.
  • Convenience. Since ETFs are baskets of assets, you can hold multiple stocks in a certain industry or sector — say oil or tech stocks — with a single click and a single purchase. Otherwise, you would have to buy all those stocks individually.

Cons

  • Expense ratio. This is basically an annual fee that you pay as long as you hold the ETF. Most ETFs cost less than 1% annually, but this is still a fee you have to pay as opposed to stocks where there are no fees to hold them.
  • Leveraged ETF gains can be misleading. Leveraged ETFs may sound like a great deal, given they move 2x or 3x the market. However, they are rebalanced daily, which means your results will vary in the long run
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3. Retirement accounts

Maxing out your IRA early in the year is probably one of the best investment decisions you can make. If you don’t have an IRA account yet, consider opening one. A maximum contribution for an IRA in one year is $6,000, which is 30% of your $20,000. Since you can invest in individual stocks and ETFs, you can consider this your main investment vehicle.

Pros

  • Tax benefits. Investing in your retirement account is similar to investing in the same assets as you would with an individual brokerage account, only with tax advantages.
  • Matching contributions from your employer. 401(k) accounts may come with a company match. This is basically free money you’d otherwise leave on the table.
  • Meet your retirement goals. By saving as much as possible for retirement, you’re making sure that the income will be enough to provide for your lifestyle without working.

Cons

  • Withdrawal limitations. Consider your money locked until you reach 59½. If you withdraw before that, you’ll likely pay penalties.
  • Deposit limitations. There are limits on how much you can deposit into your retirement accounts. The 2022 401(k) contribution limit is $20,500 and $6,000 for IRA.
  • Low annual returns. The average annual returns for a retirement account are 7%. Sometimes paying a high-interest rate loan or investing in riskier — but high-return — assets when young could be a better option.

4. Let a robo-advisor invest on your behalf

If the previous option seems too complicated or you don’t have the time to research, an excellent option is to invest your 20k is with a robo-advisor. These computer algorithms allocate your funds based on specific parameters you set.

Pros

  • Great for hands-off investors. Fund your account, and the robo-advisor takes over and continuously rebalances your portfolio.
  • Invests in ETFs and mutual funds. Robo-advisors invest in the same assets as you would invest in yourself.
  • Less expensive than a financial advisor. Since robo-advisors are computer algorithms, they cost less than hiring a professional financial advisor.

Cons

  • Robo-advisors can’t get to know you. You can’t sit and talk to a robo-advisor to develop a long-term financial plan.
  • Can’t handle complex portfolios. Robo-advisors are often best for portfolios worth less than six figures.

5. Cryptocurrencies

Crypto can be lucrative, but it’s also highly speculative and should only be explored if your portfolio can weather the volatility. Because of this, consider investing a small amount of your 20k.

Pros

  • Potentially high returns. The cryptocurrency market is still in its infancy. The global crypto market cap is less than $900 billion, where Apple (AAPL) alone has a market cap of $2.3 trillion. Investing in crypto now could turn out to be like investing in Apple 10 years ago
  • Traded 24/7. You can buy or sell your cryptocurrencies whenever you want, either from a centralized exchange like Binance.US and Kraken, a trading platform like Robinhood and SoFi or via a decentralized exchange like Uniswap.

Cons

  • Volatile. Cryptocurrencies are even more volatile than stocks. Your portfolio could see huge swings in the upside and downside.
  • Variety of risks. There are many risks involved with crypto, including exchange collapse, losing your private keys and theft if you’re not using a hardware wallet like Ledger or Trezor.

6. Alternative investments

If you’re wondering where to invest 20k aside from the popular options, consider alternative investments such as non-fungible tokens (NFTs), historic works of art and more.

  • Public.com offers cryptocurrencies, NFTs, fine art and collectibles. All you have to do is buy shares for these assets like you would buy shares on a stock exchange. And if some asset seems expensive, you purchase fractional shares.
  • Hedonova offers one fund that holds assets such as crypto, NFTs, works of art, p2p lending, pre-IPO startups like SpaceX and OpenSea, music royalties and more. But before you invest, you must pass a KYC. The minimum investment required is $5,000.

7. Real estate investment trusts (REITs)

Although $20,000 may not be enough to purchase a property directly, you can buy part of it and even earn rental income through REITs. This option is often reserved for those who want passive income and low risk — and especially those who invest for the long term.

Pros

  • Earn rental income. REITs are professionally managed portfolios that invest in real estate. This includes individual housing but also commercial space. REIT investors get to earn rental income from the properties owned by the trust.
  • Capital appreciation. REITs invest in physical properties that often increase in value over time.
  • Some REITs are publicly traded. This means they are highly liquid and you can buy or sell them like any other stock.

Cons

  • High taxes. Taxes on REIT dividends are often higher compared to dividend-paying stocks. Depending on your tax bracket, this could be as high as 37%
  • Low liquidity. Some privately traded REITs may have low liquidity, so you won’t be able to sell them whenever you want.

Before you invest

Before you invest your $20,000, make sure your finances are in order and you have a clear goal of what you want to accomplish.

  • Pay off your debt. In theory, you could earn more money by investing your $20,000 than by paying off debt. Unfortunately, we never know what the future holds. Consider paying off your debt first or at least have a repayment plan in place.
  • Create an emergency fund. You never know what could happen. Having an emergency fund is a must because you could be looking at potential losses if you need money and have to sell your investments.
  • Consider your goals. If you’re near retirement, try to limit your risk and consider investing in high-quality assets. But if you’re in your 20s or 30s, you can put some of your money on riskier assets because if you lose your money, you have time to recover before you retire.
  • Diversify your holdings. Make sure to invest your $20,000 in ETFs first and then in a variety of stocks and other assets. That’s because various assets perform differently in different situations.

Bottom line

  • When you’re wondering what to invest in with 20k, consider dividing your funds between your retirement account, investing in individual stocks, ETFs, REITs and cryptocurrencies.
  • You can divide your $20,000 among one or more investment options.
  • Each investment option comes with its own pros and cons.

Frequently asked questions

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