Whether someone's worked hard to save up to reach the $50,000 mark, or they've recently come into some cash, knowing how to invest or save it is critical to make their money work for them. If someone's wondering what to do with $50,000 (and they're not planning on spending it), the solution is simple: save it or invest it.
How to invest 50k? Investing 50k rather than putting it in a savings account is likely to yield a better return, based on the financial goals. However, investing involves risk, and it's important to be aware of these hazards, as well as comprehend how much risk they are willing to take before committing to anything. After all, they could lose part or all of their money depending on how they choose to invest it.
This article covers the various options available to someone when it comes to investing $50,000.
What to Consider Before Investing $50k
It's a good idea to examine a complete financial status before making final judgments about where to invest the money, paying special attention to what an individual's goals are, how long they want to invest, and how much risk they're ready to face.
1. How Much Time Does the Person Have?
They need to know what they want to invest their money towards before deciding on a time range that works for them. As an example, if they want to save for a wedding, they may only need to save for a few years. However, if a person wants to save for a house, they may need to save for five to 10 years.
2. What Are the Investor's Most Important Financial Goals?
An individual's financial priorities are most likely influenced by their current situation. One thing to think about is any debt they may have and whether it's worth paying it off before they invest any money. This can give them a fresh start and save their money on interest payments in the future.
3. What Is the Investor's Risk Tolerance?
Finally, a person should think about their risk profile. Any type of investment involves some level of danger, which is why they must determine how much risk they are willing to take with their money.
Best Places to Invest Money
How to invest 50k? One should be ready to look into how to invest it once they've determined their time frame, prioritized their goals, and determined how much risk they're prepared to take.
There are several viable methods for investing $50,000, depending on their circumstances. First, the person must determine their financial needs and objectives. Then,they must determine where they're going to deposit their money and which investment app they're going to use. Here are eight different methods to invest 50,000.
1. Using a Robo Advisor to Invest
A robo adviser is one of the simplest methods to begin investing. A robo adviser is a financial product that is still relatively new. Essentially, they invest on an investor's behalf in a range of ETFs based on their specific needs and risk tolerance. Some may even rebalance their portfolio, allowing them to relax and let their money work for them.
The best thing about robo advisors is how inexpensive they are. The average annual net advisory charge is 0.20 percent, but Vanguard Digital Advisor has a net target annual net advisory fee of only 0.15 percent.
2. Individual Stocks
Individual equities represent a single company's investment. The success of that company and its shares determines whether they make a profit or a loss on their investment. They could make a lot of money if they invest in the next Apple or Amazon. However, if the company in which they invest has financial issues, their investment may lose value. Stocks provide the potential for financial gains and, in some cases, dividend income through price growth. Dividends are usually paid out every three months.
3. Real Estate
In case of individuals wishing to invest in real estate, $50,000 may not be enough to buy an investment property or a home entirely, but it may surely be used as part of a down payment.
4. REIT
A REIT, or real estate investment trust, is one way to invest in real estate. Although most REITs are traded openly like stocks on the stock exchange, some are traded confidentially. Office buildings, retail space, residential properties, mortgages, or a combo of these are all examples of REIT assets.
REITs are also covered by mutual funds and exchange-traded funds (ETFs). In essence, Streitwise makes it possible for practically everyone with $5,000 to invest in private property deals. With Fundrise, an investor can make a down payment of as little as $500 in commercial property through REITs.
5. Crowdfunding
Crowdfunding platforms are another method to invest in real estate. Real estate crowdfunding enables small investors to become shareholders in a real estate venture. Non-accredited investors were previously barred from participating in private equity real estate ventures, but with the rise of crowdfunding, many of these opportunities are now available for as low as $5,000.
An investor should do their homework before investing, as they do with every investment. Moreover, they must investigate the underlying asset and the crowdfunding platform's sponsors.
Crowdstreet, which enables them to invest in real estate development for free (all fees are covered by the sponsors) and solely offers commercial real estate, is one of the greatest crowdfunding sites people can find today.
6. Personal Relationships
Bonds are a type of debt instrument. In essence, an investor makes a loan to a borrower in exchange for interest payments and the face value of the bond when it appreciates. Bonds come in a variety of shapes and sizes, including:
Treasury securities – Treasuries are risk-free assets since they are backed by the US Treasury. They are available in a variety of maturities.
Corporate bonds - These are issued by a variety of companies. Their safety is based in part on the issuer's financial situation and capacity to make interest payments and redeem the bonds when they mature.
Municipal bonds - (also known as Munis) are issued by state and local governments. The interest on these bonds is normally tax-free in the United States.
7. Mutual Funds
Mutual funds pool money from investors to invest in a certain strategy or asset type. Stocks, sub-asset classes, or bonds within these main categories, could be included. In most 401(k) plans, mutual funds are the preferred investment.
It's possible that the mutual fund is a passive index fund that follows a market index such as the S&P 500. Low-cost index funds are the most common. Mutual funds can also be managed actively. The manager makes active choices on the securities held by the fund using these. Expense ratios for these funds are typically greater than for index funds.
8. ETFs
Exchange-traded funds, or ETFs, are similar to mutual funds but trade like stocks. Many ETFs are index funds, and their expense ratios are typically modest. On a daily basis, their stocks are made public.
Mutual funds, on the other hand, only publish their holdings a few times a year. In the case of iOS and Android, some experts propose Public, a commission-free stock and ETF trading app. The app allows an investor to invest in fractional shares of stocks and ETFs and includes a feature that allows them to share their progress with their friends.
9.CDs
CDs, or certificates of deposit, are FDIC-insured savings accounts that typically last six months, a year, two years, or longer. If an investor doesn't leave their money in the CD for the whole time, they can face penalties if they take it out early.
When it comes to CDs, one method is to ladder the maturities so that they always have one due at a convenient interval, such as every six months. CDs are frequently offered by banks and other financial institutions. They are also available from some brokerage firms.
10. Bonds
Bonds are financial instruments that represent a company's or government's debt. When a firm or the government issues a bond, they're essentially issuing debt and promising to pay interest on the money they're 'lending' them. Bonds often pay out annual interest while also repaying their debt. As a result, bonds are frequently seen as one of the safest types of investment, particularly for those looking to invest for a short period.
Starting with 'gilts,' or government bonds, at the safe end, and progressing to high-yield bonds from corporations with low credit scores at the riskier end, the various forms of bonds can best be represented as a spectrum from most to least dangerous.
11. Pensions and Annuities
Investors don't have to worry about investing or managing an annuity because it gives them a guaranteed income stream for a set period. They must, however, forfeit their right to access their funds.
12. Peer-to-peer Lending (P2P)
P2P lending (peer-to-peer lending) is a new approach to investing or expanding a person's current financial portfolio. Direct loans can be made without the involvement of banks using this sort of investment. This means that they lend money to a person, or 'peer,' and receive interest while they pay it back over time. All parties collaborate through online platforms, which reduces operational expenses and allows for lower interest rates.
While this may appear to be risky, P2P organizations lessen this risk by dividing an investor's funds among numerous borrowers rather than giving them all to one. The disadvantage is that P2P lending is not yet covered by the FSCS, which means they are more likely to lose their money if the borrower fails.
On the plus side, interest rates can be very competitive, and basic rate taxpayers can deduct the first $1,000 of interest generated via P2P lending. Some P2P savings can be held in ISAs as well.
13. Taxable Investment Accounts
It can make sense to create a taxable brokerage account or a mutual fund account, depending on their situation. In the case of individuals who have enough money in their retirement accounts, these accounts provide a measure of diversity. If the funds are needed, they are also more liquid. If funds are removed from an IRA or other form of a retirement plan before the age of 5912, they may be exposed to taxes and a 10% fine.
14. The 529 College Savings Account
A savings account is a type of college savings plan that allows a person to invest $50,000 into a 529 college savings plan for their children, which can be a wise investment. Tuition, books, housing, and a variety of other educational expenses can all be paid for using these programs. Many states provide additional tax benefits to their residents.
Each plan has its own set of investments. Many plans also provide an age-based option that adjusts the investment mix as the beneficiary approaches 18 years old. There are also mutual funds and other related investments available.
15. Considering Alternative Investments
"Alternatives" is a broad term that refers to any investment that is not classified as bonds, stocks, or cash. As a result, real estate is frequently referred to as an alternative investment. Other popular options include:
Art
Cryptocurrency
Private equity
Antiques
Coins
Stamps
Wines
Commodities
Alternative investment returns are frequently uncorrelated with stock market returns. As a result, some investors prefer to hedge against stock market volatility by investing a portion of their portfolios in alternatives.
Cryptocurrency has been one of the most popular alternative investments in recent years. While there are numerous cryptocurrency exchanges, the majority of them charge transaction fees. Customers of Robinhood, on the other hand, can freely purchase and sell Ethereum, Bitcoin, Dogecoin, and other cryptocurrencies.
Coinbase is one of the most user-friendly platforms for buying and selling cryptocurrencies.
It has around 56 million users in over 100 countries. It also handles a quarterly trading volume of more than $335 billion. With over 5k cryptocurrencies covered, an investor can have all the information they need to invest with confidence. They can invest at any time due to the ease of use, but they must not get ahead of themselves. Overall, they should keep their bitcoin investments to 10% of their overall portfolio or less.
16. Hiring a Financial Advisor
Robo-advisors can conduct numerous repetitive financial management activities through the use of technology and automation. However, if a person is searching for personalized investment advice, they might want to meet with a Pittsburgh financial advisor instead.
Thus, for investors with a large net worth or complicated financial lives, financial advisors can be an excellent alternative. Checking in with an advisor through major life transitions like getting married or becoming a parent can also be comforting.
17. Purchasing a Vacation or Short-term Rental.
An investor doesn't have to rent to long-term renters just because they purchase and hold a home for a long time.
In some markets, renting out their house for a short period can earn them some extra money. It might be renting it furnished to business renters such as travel nurses, or it could be rented on Airbnb to tourists.
Before purchasing a property, they need to understand their business model. Because the revenue and expense statistics differ based on whether the property is used as a long- or short-term rental, the cash flow calculations in their due diligence may change.
Better still, they must do the math in both directions. They should know that they can make money even if the market or local restrictions change when they discover a home that cash flows well as a vacation rental, long-term rental, or business rental.
They may finance it either way with the same property investment loan, and they can always alter their property's business model when the market changes. More contingency choices can imply more risk protection as they consider what to do with $50,000.
18. Starting a Company
Because of the amount of money a person may make, starting a business is one of the best ways to be successful. People should invest $50,000 in that potential business idea that they've been putting off due to a lack of funds. If they're launching a high-risk business, they must do their homework, get professional counsel, and create a sound business plan before getting started.
Of course, the amount of money needed to start a business is determined by the type of business and industry. However, according to a 2009 research by the Ewing Marion Kauffman Foundation, the average cost of setting up a firm is roughly $30,000, leaving them with $20,000 to invest elsewhere.
Alternatively, while beginning a business with no money may appear impossible at first, it is not impossible. In some cases, a personal loan can even be used to launch a business. The main idea is that there is nothing preventing one from starting a company.
The Importance of Having a Diversified Investment Portfolio
In order to reduce uncertainty, diversification entails investing in a variety of assets or asset categories. When it comes to investing $50,000, one should think about diversifying both inside and across asset classes.
Buying dozens or hundreds of companies from several stock sectors rather than just one or two firms from the same industry is one way to diversify within an asset class. If someone only has one stock in their portfolio, and it goes down, their entire portfolio may go down with it. However, if that stock is just one of 25, 50, or 100+ that they own, they may still make a profit overall.
Investors can begin to diversify across asset classes by investing in bonds and international stocks in addition to domestic stocks. However, they might want to explore diversifying their portfolio further by investing in real estate or alternative assets such as Bitcoin, collectibles, or private equity.
Before Investing, Here's What Investors Should Do
It's fantastic that someone wants to invest $50,000 into work rather than spend it. A person might double their money in seven years if they only earned the S&P 500's typical annualized return (about 10%). That implies they may have a comfortable $100k in their investment portfolio in seven years. They may have $200 000 in less than 15 years.
While some may be anxious to begin compounding as soon as possible, this does not mean they should invest their $50 000 immediately. They should start with the first three steps listed below.
Getting Rid of High-Interest Debt
The average credit card interest rate, according to the Federal Reserve, is over 14.65%. It's also not unusual for credit cards to have an annual percentage rate (APR) of 20% or higher.
These figures show why repaying credit card debt should almost always take precedence over investing. A person can get a larger guaranteed return on their money this way than the majority of investors ever hope to get from their investments.
Personal loans, vehicle loans, and payday loans are all examples of debt with high-interest rates. Investor.gov recommends that they pay off these or any other types of debt with an interest rate of 8% or higher as soon as possible.
What about debt from a home or college loan? Should they also pay off these loans early? It depends, as it does with so many personal finance questions. The interest rate on the loans, their risk tolerance, and other factors all play a role.
Creating an Emergency Fund
One of the most important personal finance lessons the COVID-19 outbreak taught people was the importance of having an emergency fund. People never know when an unforeseen catastrophe can result in a reduction in their income or the loss of their work entirely.
Now, how much money should someone put in their emergency fund? The majority of experts recommend setting up an emergency fund at least three to six months' worth of spending. However, if they're self-employed or retiring, they may want to put aside even more money for emergencies.
Still, isn't investing money the same as putting money aside for an emergency fund? No. Putting money aside for emergencies in the stock market might be risky for two reasons:
First, someone may have to liquidate their investments at a loss if an emergency arises while they are down. Second, early withdrawal of their investments may result in fines, penalties, or taxes. This is especially true when it comes to investments in retirement accounts.
A high-yield deposit account is one of the finest places to keep an emergency fund in most cases. Chime, for instance, has a no-fee account that pays 0.50 percent Annual Percentage Yield (APY), which is eight times more than the national average! It also has automatic saving features. Chime account customers can get their emergency fund direct deposits up to two days ahead of schedule.
Determining the Investor Profile and Risk Tolerance
One must first determine what type of investor they are before they begin investing. In order to begin, they should think about their risk tolerance. The following are the three most prevalent risk tolerance categories:
Conservative: These investors have a low-risk tolerance and place a high value on capital appreciation. Conservative portfolios are often heavy on bonds and other fixed-income assets, with low exposure to stocks.
Moderate: Moderate investors are willing to accept some short-term risk in exchange for larger long-term potential gains. Moderate portfolios are often well-balanced between stocks and low-volatility assets like bonds.
Aggressive: Aggressive investors are willing to take on high levels of risk in order to maximize their prospective returns. Aggressive portfolios are often substantially invested in equities, with a particular concentration on growth stocks with higher volatility.
They should consider their time horizon while determining their risk tolerance. Someone planning to retire in 33 years may be more ready to ride out stock market setbacks than someone planning to retire in three years.
Moreover, investors should also think about the size of their portfolio. The bigger their portfolio is, the more risk they can take on. As an example, if a $5 million retirement portfolio loses 10% of its value, they still have $4.5 million. However, a 10% loss on a $500,000 portfolio (reducing it to $450,000) could cause some retirees to be concerned about outliving their savings.
Investing Actively vs. Investing Passively
The only aspect of an investor profile that they should figure out before investing is their risk tolerance. They should also think about whether they want to invest actively or passively.
On the other hand, the investor (or a fund manager or financial advisor) should choose each of their investments with active investing. Passive investment, on the other hand, typically entails buying and holding benchmark indexes through ETFs or mutual funds.
Active investing could be a good option if someone's ready to put in the time to study options or pay someone else to do it for them. Passively investing with a robo-advisor or on their own may be the way to go if they're looking for a "set-it-and-forget-it" method.
Conclusion
A $50,000 investment can be made in a variety of ways. The best investments for an individual can be determined by several factors, including their risk tolerance, age, and financial objectives. The same goes for if you are wondering how to invest 20k. People may contact the Kelley Financial Group for more information on how to create an investment strategy.