How to invest $5,000

Use these five investing strategies to maximize returns and grow your investment.

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You’ve acquired $5,000 and now you’re wondering what to do with it. Could you double it? Invest in real estate? Take a risk in the stock market? Turns out you can do all three and more.

How to build a $5,000 investment portfolio

Before you build an investment portfolio, determine your goals and risk tolerance.

CDs and bonds are less risky, but they also have modest returns. Stocks are known for having high risk, but they also have the highest potential returns.

Weigh the risk and reward of each investment type and consider how much you’re willing to potentially lose in hopes of higher returns.

Here’s what a $5,000 portfolio might look like:

Investment typePercentage
CDs and bonds15% to 50%
Stocks, ETFs and mutual funds50% to 75%
Real estate and alternative investments0 to 25%

Before you invest $5,000

Before you invest $5,000, consider the following savings options:

  • Emergency fund. Keep three to six months of expenses in a high-yield savings account so you have immediate access when you need it.
  • Vacation fund. Start a vacation fund so you always have some money on hand for an adventure. Let it earn interest with a high-yield savings account.
  • Debt-payoff fund. If you have high-interest debt, pay it off before you tackle any investing methods. It’s difficult to grow your wealth when an APR of 10% or higher is digging you into deeper debt.

Ask an expert: How should I invest my $5,000?

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Dennis Shirshikov
Financial Analyst, Fit Small Business

With $5,000, most individuals begin to strategize how to earn some interest on their investments.

It’s too early to consider long-term investments like stocks, bonds, and even certificates of deposit. However, most banks and savings accounts will offer some interest on this amount of money.

It isn’t the same return, yet $5,000 is usually enough to cover a few month’s worth of expenses.

Consequently, the absolute priority with $5,000 is to ensure there is a liquidated rainy day fund with little to no exposure to market conditions.

Invest in 401k match

If your employer offers a dollar-for-dollar match, you’ll want to raise your contribution percentage to invest in your 401k. This decreases your take-home pay, but you can use the $5,000 to supplement the missing money from your paycheck.

Pros

  • Free money. Regardless of how much your employer matches, this is free retirement money.
  • Tax-deferred. Contributions are made with pretax dollars, which lowers your tax bill for the year. But you’ll pay taxes in retirement when you withdraw funds.

Cons

  • Can’t use funds until retirement. You’ll pay a penalty if you withdraw 401k funds before you’re 59 and a half.
  • Limited investment options. 401k plans use simple investment vehicles like stocks, bonds and cash.
  • Can’t invest funds directly. 401k contributions are deducted straight from your salary, so you can’t make a one-time, lump-sum contribution.

Invest in a Roth IRA

A Roth IRA is a retirement account that offers notable advantages such as:

Pros

  • Contribution limit. The maximum contribution limit for a Roth IRA is $6,000 in 2019, so investing $5,000 means you’ll capitalize on benefits like compounding interest and tax-free growth.
  • Tax-free growth. You pay taxes upfront, which means you won’t pay taxes when you withdraw funds.
  • Penalty-free withdrawals for qualified expenses. You can withdraw funds without penalty before age 59 and a half for college expenses and first-time home purchases.

Cons

  • Income limits. You can’t contribute to a Roth IRA if your modified adjusted gross income is over $122,000 a year.
  • Not tax-deferred. You pay taxes upfront when you contribute to a Roth IRA.
  • Must open account yourself. Unlike a 401k that’s started by your employer, you’re responsible for researching and opening a Roth IRA.
What is modified adjusted gross income (MAGI)?

MAGI is used to determine if you qualify for certain tax deductions and retirement plans. Unfortunately, MAGI isn’t listed on your tax return. Calculate it by taking your adjusted gross income, which is listed on your return, and adding back in certain deductions and accrued tax-exempt interest, such as:

  • Student loan interest
  • Tuition expenses
  • Self-employment tax
  • IRA contributions
  • Social Security payments
  • Income from a US savings bond
  • Rental losses
  • Foreign housing deduction

Invest with a robo-advisor

A robo-advisor is an automated investment platform that makes portfolio recommendations based on a series of questions it asks about your goals, risk tolerance and timeline.

Pros

  • Low fees. Robo-advisors typically have lower management fees than traditional advisors — some even as low as $0.
  • Accessibility. With a robo-advisor, you can manage your account straight from your mobile device or computer.
  • Maintenance-free. Many robo-advisors maintain your account through automatic tax-loss harvesting and rebalancing.

Cons

  • Limited personalizationy. A robo-advisor makes recommendations based on algorithms and calculators, which can be somewhat generic.
  • No face-to-face interactionsy. No matter how advanced robo-advisors get, they’ll never be a true replacement for financial advisors.
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 ETFs

An exchange-traded fund (ETF) is a collection of stocks, bonds and commodities that’s traded on the stock exchange as one single security.

Pros

  • Diversification. ETFs are made up of a large number of stocks, which lower your overall risk.
  • Commission-free options. Many brokers offer commission-free ETFs, which means you’ll keep more money in your pocket by avoiding fees.
  • Easy liquidity. You can buy or sell ETFs at any time, making it easy to access funds in a pinch.

Cons

  • Limited selection. ETFs are diverse in nature, but there aren’t nearly as many ETFs on the market as other investments, such as mutual funds.
  • Fees. You may pay a fee each time you buy and sell depending on who your ETFs are through.
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.
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.
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
TradeStation
TradeStation
Stocks
Bonds
Options
Mutual funds
ETFs
Futures
$5
$5 + $0.50/contract
$99.95 per month
A platform built for all kinds of traders and all styles of trading

Compare up to 4 providers

Invest in real estate investment trusts

While you may find some real estate properties or private real estate investment trusts (REITS) looking for a $5,000 investment, you’re better off choosing publicly-traded and public non-traded REITs since they typically offer lower investment minimums.

Pros

  • Good for beginners. REIT investors don’t manage any property, so it’s an easy way to get started in real estate with minimal experience.
  • Low minimum deposits. Many REITs have opening deposits of less than $1,000.
  • Dividend payments. Receive a regular cash flow in the form of monthly or quarterly dividends.
  • Diversification. Instead of investing in a single property, REITs allow you to diversify with many different properties nationwide.

Cons

  • Volatile. Most REITs are publicly traded, so their value fluctuates with the stock market.
  • Less flexibility. You have less control over REITs than you would with an individual property.
  • Different than direct investing. With REITs, you’re investing in real estate stock, which is different than directly investing in a property.
Name Product Available asset types Stock trade fee Option trade fee Annual fee
Streitwise
Real estate
2%
Streitwise is an online real estate investing company that combines innovative technology and new federal regulations.
PeerStreet
Real estate
0.25%

1%
PeerStreet is a marketplace that provides access to high-quality real estate loan investments, but you have to be an accredited investor.
Fundrise
Real estate
0.85%
Invest in commercial and residential REITs with as little as $500, but watch out for hidden costs.
RealtyMogul
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

Bottom line

You’ve made your first step in planning to invest your $5,000 wisely. Once you have a plan for how to use it, compare top investment accounts until you find the perfect one for you.

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