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How to invest $50,000
Here are five popular ways to invest $50,000 today.
No matter how much money you make, $50k is a decent chunk of change. Invest it wisely with any of our top five picks. And with an amount this large, you have the freedom to choose as few or as many of these options as you’d like.
How to build a $50,000 investment portfolio
What should your $50k portfolio look like? It depends on several factors like your age, goals, risk tolerance and timeline.
Your investing goals will likely be more aggressive in your 20s to 30s than they will be in your 50s. If you’re in your 30s and looking to build a portfolio aimed for growth, this is what it may look like:
|CDs and bonds||5% to 20%|
|Stocks, ETFs and mutual funds||50% to 75%|
|Peer-to-peer lending, real estate and alternative investments||0 to 25%|
Before you invest $50,000
There are a few financial boxes you should check off before you invest $50,000:
- Build an emergency fund. We recommend keeping three to six months of expenses in a high-yield savings account, so it’s available when life throws an unexpected curveball.
- Save for your kid’s education. If you have children, consider setting aside a portion of the $50k to save for their college education.
- Create a vacation fund. Pay for your next adventure in full by keeping some money in a high-yield savings account.
- Pay off debt. It’s always best to pay off high-interest debt before you invest because you pay more in interest than you’d earn in any investment vehicle.
Ask an expert: How should I invest my $50,000?
Financial Analyst, Fit Small Business
Anyone with $50,000 to invest should consider low-risk investments and some degree of diversification.
The best illiquid investment vehicles are certificates of deposits, with varying maturity dates. Many individuals may select a single certificate of deposit, but distributing funds across multiple provides added flexibility and ensures that, in the event of an emergency, it isn’t just one CD that needs to liquidate.
Mutual funds are also a good investment, but should not represent over 25% of an investor’s portfolio. Although mutual funds are usually well-diversified, a macro downturn will lead to a reduction in savings and can create a perfect storm as job security vanishes and savings dry up.
Consequently, any investment tied to market fluctuations should be kept to a minimum and only considered if the money invested there can be lost without creating significant issues.
Invest in real estate
There are several ways you could invest in real estate with $50k. You could purchase real estate investment trusts (REITs) through a site like Fundrise, invest directly in a commercial property through RealtyMogul 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.
- 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.
Invest in bonds
If you plan on making a big purchase in the near future, such as buying a home or sending the kids to college, it may make sense to invest your money in bonds. Terms typically range from a few months to 30 years.
- Little risk. Bonds are considered stable investments and carry less risk than other securities.
- Tax efficient. You typically don’t pay federal taxes on local, state and federal bonds.
- Provide passive income. Bonds produce a steady, fixed income and offer higher returns than other safe investments like savings accounts.
- Risk varies. Government bonds are typically safer than corporate bonds, although this isn’t always the case. You’ll want to check what letter grade it was assigned by the credit rating agencies.
- High investment minimums. Bond prices usually start at $1,000. But some can cost much more than that.
- Could lose value. Your bond could lose value if the issuing entity defaults or interest rates rise when you’re ready to sell.
Invest with a robo-advisor
If you’d like some guidance on how to invest $50k, a robo-advisor may be a good alternative to a traditional adviser.
- 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.
- Some offer human assistance. Robo-advisors like Betterment give you access to a human adviser for an additional cost.
- 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.
- Relatively new. Robo-advisors came on the scene after the Great Recession, so we don’t know how they’ll help investors during the next economic downturn.
Invest in a 401k
$50k is enough to max out your 401k and still have at least $24K left over. You can increase your contribution percentage and use part of the $50k to supplement the gap in your take-home pay.
- Tax-deferred contributions. You get a tax break in the year you contribute to a 401k. But you’ll pay taxes later on when you withdraw funds.
- Employer match. You get free retirement money if your employer matches your contribution up to a certain amount.
- For all investors. Many 401k plans offer low-cost index funds and target-date funds, which are great options for hands-off or novice investors.
- Contribution limits. The maximum contribution limit for a 401k in 2020 is $19,500 or $26,000 if you’re at least 50.
- No lump-sum payments. 401k contributions can only be funneled out of your paycheck, so you can’t make a one-time payment to this account.
- Plan could have high fees. If your employer-sponsored plan has hefty fees or an unimpressive range of investment options, you may not want to max it out.
Invest in the stock market
The stock market can be a great way to grow your wealth, as long as you’re aware of the pros and cons.
- Low-cost online brokers. Many online brokers offer low fees, small minimum investments and commission-free trades.
- Comprehensive options. You can invest in a range of stocks, bonds, mutual funds and ETFs.
- Easy to diversify. Spread out your risk by investing in ETFs and low-cost index funds.
- Beats inflation. The stock market produces an average 8% yearly return, making it a great way to accumulate wealth and stay ahead of the cost of living.
- Liquid investment. It’s easy to sell off some of your portfolio when you need it.
- Volatility. The stock market is very volatile and experiences daily dips and swings.
- Can be risky. If you throw all your money in stocks instead of making a plan to diversify, you could lose all your money.
- Watch out for fees. Some brokers charge hefty fees and commissions, which could eat into your profits.
Investing $50k can be exciting but also scary. If you have multiple goals you’re trying to reach, splitting it up among different investments may be the best option for you. Take some time to map out your goals and risk tolerance. Then compare investment platforms until you find the best options for you.
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