How to invest $20k

Wondering how to invest $20k wisely? Here are our top five picks.

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You have $20k sitting in the bank and you’re wondering how to take that nest egg and turn it into even more money. Here are five 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 higher potential returns.

If you’ll need the money in three years, you may consider a less risky investment type with modest returns, such as a CD or bond.

Here’s one example of how a 20k portfolio might look if you’re aiming for higher returns over a longer period of time:

Investment typePercentage
CDs and bonds0 to 40%
Stocks, ETFs and mutual funds50% to 75%
Real estate and alternative investments0 to 25%

Before you invest $20k

Before you invest $20k, make sure you have the following in place:

  • Emergency fund. Ideally, you’ll keep three to six 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’ college fund. If you have children, you may consider setting aside a portion of the $20k for their college education.

Invest in your 401k

Your employer deducts 401k contributions straight from your salary, so you’ll need to increase your contribution percentage to invest more money. This will make your take-home pay smaller, but you can supplement the missing income with your $20k investment.

Pros

  • Company match. You earn free money when your employer matches your contribution.
  • Tax-sheltered account. You pay into your 401k with pre-tax dollars, which lowers your tax bill for the year.

Cons

  • Illiquid investment. If you touch the funds before you’re 59 and a half you’ll pay an early withdrawal penalty.
  • Can’t make direct contributions. Your employer takes 401k contributions out of your paycheck, so you can’t make a one-time contribution.
  • Required minimum distributions. The IRS forces you to take distributions from your 401k at age 70 and a half, which means your assets have less time to grow and you could get bumped into a higher tax bracket.
How do I calculate my required minimum distribution (RMD)?

Calculate your RMD by taking your account balance as of December 31 and dividing it by your life expectancy factor on the IRS Uniform Lifetime Table.

Invest with a robo-advisor

If you want professional guidance on how to invest without forking over money for a financial advisor, a robo-advisor may be what you need.

Pros

  • Automated strategies. Robo-advisors make portfolio recommendations based on your goals, risk tolerance and timeline.
  • Maintenance-free. Most robo-advisors keep your portfolio aligned with your ideal asset allocation through automatic tax-loss harvesting and rebalancing.
  • Low fees. You’ll typically pay lower fees with a robo-advisor than you would with a traditional advisor.

Cons

  • Limited recommendations. The level of personalized advice you receive depends on the company’s AI, and some offer better advice than others.
  • No in-person support. There’s not an actual financial advisor you can pick up the phone and call when you have questions.
Name Product Minimum deposit to open Available asset types Annual fee
Ally Invest Managed Portfolios
$100
Stocks
Bonds
ETFs
Cash
0%
No advisory fees for automated investing that's professionally managed. Now with a Socially Responsible Investing portfolio option.
SoFi automated investing
$1
ETFs
0%
Put your money to work. Pay zero SoFi management fees.
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
$10 per month
After an analysis, Blooom will place the trades within your 401k, 403b, 401a, 457 or TSP plan account for a low flat fee.
Worthy
$10
Bonds
0%
Earn a 5% fixed return on bonds that support American small businesses.
Acorns
$0
Stocks
Bonds
ETFs
$1 per month
Invest your spare change. Anyone can grow wealth.

Compare up to 4 providers

Invest in a brokerage account

If you’re more of a hands-on investor, $20k is more than enough to get started with a major online broker.

Pros

  • Variety. Many brokers offer stocks, mutual funds, bonds, ETFs and options.
  • Freedom. 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 fees.
Name Product Available asset types Stock trade fee Option trade fee Annual fee
Ally Invest Self-Directed Trading
Stocks
Bonds
Options
Mutual funds
ETFs
Forex
Futures
$4.95
or $3.95 with a $100,000 average daily balance or 30+ trades over a rolling 3-month period
$4.95 + $0.65/contract
or $3.95 + $0.50/contract with a $100,000 average daily balance or 30+ trades over a rolling 3-month period
0%
500+ commission-free ETFs, some of the industry's lowest fees plus a cash bonus up to $3,500.
You Invest
Stocks
Bonds
Mutual funds
ETFs
$0
$0 + $0.65/contract
0%
Free online stock, ETF and options trades with $0 minimum to start.
INVESTMENT PRODUCTS: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Firstrade
Stocks
Options
Mutual funds
ETFs
$0
$0 + $0/contract
0%
Firstrade customizable trading platforms let you manage your account and trade from your desktop, iPad or mobile phone.
Webull
Stocks
Options
ETFs
$0
0%
Margin financing rates start at 3.99%. No monthly subscription fees for margin.
Zacks Trade
Stocks
Bonds
Options
Mutual funds
ETFs
Forex
Cash
$0.01 per share
($3 minimum)
$3 + $0.75/contract
0%
Trade stocks, options and ETFs for as low as $1 per order for a year when you open a new account by December 31, 2019, and fund it with $2,500 or more within 60 days.
Robinhood
Stocks
Options
ETFs
Cryptocurrency
$0
$0
Make unlimited commission-free trades in stocks, funds, and options with Robinhood Financial.

Compare up to 4 providers

Invest in real estate

There are several crowdfunding sites that let you invest in real estate with as little as $5k or $10k.

Pros

  • Generates income. Most real estate investments generate monthly or quarterly dividend payments.
  • Pre-vetted properties. Many crowdfunding sites pre-vet offerings, so you don’t have to find a local property yourself.
  • Tax deductions. When you invest directly in real estate, you can write the asset’s depreciation off on your taxes.

Cons

  • Illiquid investments. Real estate is an illiquid investment because there’s no guarantee a buyer will be available when you’re ready to sell.
  • Some require accreditation. If you can swing the minimum payment, you may need to be an accredited investor to qualify for some crowdfunding platforms.
  • Variable fees. Fees vary depending on the platforms and individual investments.
Name Product Minimum deposit to open Eligible investors Available asset types Annual fee Average return
Streitwise
$1,000
All
Real estate
2%
8% to 10%
Streitwise is an online real estate investing company that combines innovative technology and new federal regulations.
PeerStreet
$1,000
Accredited only
Real estate
0.25%
1%
7% to 12%
PeerStreet is a marketplace that provides access to high-quality real estate loan investments, but you have to be an accredited investor.
Fundrise
$500
All
Real estate
0.85%
8.7% to 12.4%
Invest in commercial and residential REITs with as little as $500, but watch out for hidden costs.
RealtyMogul
$5,000
Accredited only
Real estate
1%
Invest directly in commercial real estate through this crowdfunding platform. But you’ll pay variable fees depending on the investment type.

Compare up to 4 providers

Invest in peer-to-peer lending

With peer-to-peer lending, you loan your money out to other individuals in need.

Pros

  • Profitable returns. Many peer-to-peer lenders have seen returns above 6%, according to a 2018 Forbes article.
  • Simple. Investing through peer-to-peer lending is much simpler than choosing stocks for the first time.
  • Passive income. Receive monthly payments as borrowers repay the principal and interest on their loans.

Cons

  • Risky. Some borrowers may default, so mitigate risk by funding several loans from multiple borrowers.
  • Can’t get out of the loan. Once you commit to lending out funds, you can’t sell the loan to someone else.

Bottom line

There are a lot of different ways you could 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 start comparing top investment accounts.

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