Ten thousand dollars in investable cash can provide a healthy boost to your portfolio, and it opens the door to a large number of investment options. So where should you allocate your money? Let’s look at five options for how to invest $10K.
Stocks are considered to offer the greatest potential for growth over the long term. Historically, the stock market has delivered annual returns of about 10%. In the last two and a half decades, technology stocks like Google (GOOGL), Amazon (AMZN) or Microsoft (MSFT), in particular, have offered some of the best returns of any financial asset. However, with these high returns comes greater volatility, making these stocks better for long-term investors or investors with a high-risk tolerance.
Investors with a lower risk appetite may instead favor dividend stocks like Coca-Cola (KO), General Mills (GIS) and Procter & Gamble (PG). Stocks that pay dividends tend to be less volatile and typically provide stability to a portfolio. Dividend investors give up the outperformance that comes with many high-quality growth stocks for the reliable income stream of dividends.
While individual stock picking requires time and research, stocks are highly-liquid assets. Since there’s almost always a buyer, it’s usually quick to cash out your shares if and when you’re ready to sell. Most brokerages don’t charge stock trading fees, and holding shares gives you voting rights in the company.
Stock trading is more accessible than ever before. And with the advent of fractional shares, you don’t have to save up enough to buy whole shares of blue chip stocks like Tesla (TSLA) or Walmart (WMT). Many brokers let you buy shares for as little as $1.
Individual retirement accounts (IRAs) are versatile investment accounts that offer tax benefits for saving for retirement. These tax-advantaged accounts let you invest in many of the same assets available to you in a taxable brokerage account but with the addition of tax incentives, making them a foundational account for all investors.
The traditional IRA offers upfront tax benefits through deductible contributions, and you pay taxes on your money when you withdraw it in retirement. If you think you’ll be in a lower income tax bracket later in life, investing through a traditional IRA could be advantageous. Roth IRAs, on the other hand, let you pay taxes now to withdraw funds tax-free later on. If higher taxes are likely in your future, you may benefit from paying taxes today at a lower rate.
Federal law permits most types of investments in an IRA, including:
Meanwhile, self-directed IRAs let you diversify even further with alternative assets, including real estate, gold and other precious metals, cryptocurrencies and pretty much every other investable asset out there. The best traditional IRAs of 2024 and the best Roth IRAs 2024 offer plentiful investment options, low fees and a trading platform suitable for your investing experience and needs.
In 2023, the contribution limit for all your traditional and Roth IRAs is $6,500 ($7,500 if you’re age 50 or older). If you’re married and you and your spouse file a joint return, you can each contribute to separate IRAs. With $10K, you could max out one spouse’s IRA and use the remainder to fund the other.
Index funds are ETFs and mutual funds designed to track and achieve roughly the same return as a particular market index, such as the S&P 500 or the Nasdaq Composite. To accomplish this, fund managers invest in the securities of companies included in the selected index. For instance, the Vanguard 500 Index Fund ETF (VOO) invests in all the stocks in the S&P 500. This gives you instant diversification across various stocks and sectors. And since index fund managers only need to passively track a fixed index of securities, it involves fewer fees and expenses passed on to the investor.
Index funds are a great option if you’re looking for an effortless investment for your $10K. Billionaire investor Warren Buffett owns at least two — VOO and the SPDR S&P 500 ETF Trust (SPY) — and he recommends index funds for most investors.
Managing your own investments takes time. And whether you don’t have any or simply have no interest in spending it picking your own investments, hiring a financial advisor may be a worthwhile investment.
A financial advisor can help educate you about your investments, retirement plans, taxes and wealth management options and build a custom plan to help you achieve financial goals. They typically charge either an hourly fee of between $100 and $300 or a fixed fee to implement and maintain your financial plan. This can be anywhere from $1,000 to $3,000. They may also charge a fee of between 0.25% and 1% per year to manage your investments. Even a one-time consult to help you put a plan in place can deliver significant value.
State 529 plans are tax-advantaged investment accounts that you can use to pay for future education costs. Earnings grow tax-free, and withdrawals are tax-free if you use the money to pay for qualified education expenses, such as tuition, books and school supplies. Contributions are made after-tax, and though they’re not federally tax-deductible, many states offer deductions from state income tax.
Most 529 plans come in two options: prepaid tuition plans and education savings plans. As the name suggests, prepaid tuition plans let you prepay for your kid’s college. So long as you save enough to cover today’s tuition rate, you’re typically guaranteed to have enough to pay future tuition rates. With prepaid plans, the state typically invests your money on your behalf.
Education savings plans, on the other hand, put you in charge of managing the investments. You typically get to choose from a list of available investments, but index funds are often one of those options.
A certificate of deposit (CD) is a savings vehicle that lets you save a fixed amount of money over a set period and earn interest for tying up your funds. CD terms can range from a few months to five years.
The best CD rates are usually around the rates you’ll find with a high-yield savings account. As of August 2023, many CD rates exceed 5% APY, depending on your chosen term. The longer you agree to lend your money, the higher the APY you can typically earn.
Now, a CD ladder is a savings strategy where you spread cash equally between several CDs to take advantage of the highest rates while also freeing up money in shorter intervals.
With $10,000, a CD ladder might work like this:
If rates go up, you can take advantage of the higher rates when the shorter-term CD matures. Since CD rates are locked in for the duration of the term, a drop in rates won’t affect your return. If rates are too low for you when a CD matures, you don’t have to reinvest it in CDs.
If you’re still unsure how to best allocate your money, here’s a look at how $10,000 might grow in three common investment classes.
| $10,000 saved or invested | CD | Bonds | Stocks |
|---|---|---|---|
| 1 year | $10,506 | $10,533 | $11,000 |
| 5 years | $12,799 | $12,965 | $16,105 |
| 10 years | $16,382 | $16,808 | $25,937 |
| 15 years | $20,968 | $21,791 | $41,772 |
| 20 years | $26,838 | $28,252 | $67,275 |
| 25 years | $34,351 | $36,627 | $108,347 |
| 30 years | $43,967 | $57,486 | $174,494 |
For this table, we assumed:
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.
Put it toward a down payment for a house. If you’re ready to enter the real estate market, consider putting the $10,000 toward a down payment. Mortgage lenders typically require a down payment of at least 20% of the mortgage amount, or you’ll need to pay for private mortgage insurance.
Add sweat equity to your house. If you currently own a home, $10,000 is a good chunk of money you can put toward improvements or expansions that increase your home’s value.
Pay down high-interest debt. Considering putting some of your $10K toward eliminating debt that’s racking up interest. If you have a credit card with a 15% annual percentage rate (APR) and are only earning 5% on your investments, you may be better served to put that money toward repaying debt.
Not all the investments listed in this article will be right for you, so here are a few more investments to consider:
Start or grow a business: According to recent estimates, microbusinesses cost around $3,000 to start. This can vary depending on the type of business and whether it is based in a physical location or online.
Build out your home office: If you work from home full-time, consider investing in building out your ideal workspace. Having the right desk, chair, computer and other technology can do wonders for productivity.
Free your time: While you don’t need to drop the entire $10,000 to accomplish this, freeing up your time to be used on more important matters can be a worthwhile investment. If you can hire a cleaning service to clean your home, you can spend that time working and making more money. And if you can make more than what you’re spending on the help, then you’re coming out on top.
Ultimately, the best way to invest $10K depends on your investment strategy, financial goals, risk tolerance and time horizon.
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