What would you do if you suddenly found yourself with an additional $50,000? If you have the ability, you should put this money towards your future. Stocks and exchange-traded funds can be used to either invest in or enhance your existing financial condition. There are several alternatives accessible to you.
Everyone defines financial comfort differently, but let’s just say there’s nothing particularly unsettling about $50,000 dropping in your lap – except for the weight of all that paper. Choosing how to invest so much money might be difficult, especially if you aren’t used to receiving a large sum of money all at once, as most individuals are.
Don’t allow hesitation to get the best of you. Instead, we recommend taking it slowly. First, check to see if this money will be taxed; the IRS may rapidly reduce that $50,000 to a still-exciting-but-smaller $35,000. Then, make sure you have an emergency fund and aren’t in debt with a high interest rate.
Consider These Points Before Investing $50,000
Take a step back and evaluate your financial condition before committing $50,000. Do you have any urgent financial difficulties right now? You must first ensure that your finances are in order before investing your money. Let’s have a look at a few things you should do before you start investing.
Create an Emergency Fund
In the case of a job loss or other financial upheaval in our life, financial advisers advocate having a three to six-month emergency fund set aside. Put this money in a secure, liquid vehicle, such as a money market fund or account, a savings account, or another safe, liquid vehicle. Keep this money on hand for when you need it, and don’t take any risks with it. Experts advocate putting a significant portion of your emergency fund into a high-yield saving account like Wealthfront Cash.
Getting out of debt
If you have debt that you are gradually paying off, use part or all of the $50,000 to pay it off, especially if the loan has a high interest rate. For example, if you have $30,000 in credit card debt with a 20% interest rate, paying it off effectively gives you a 20% return on your investment. It also gives you the financial freedom to support other financial goals in the future rather than paying off debt.
Establish your objectives and risk tolerance
Every investor is in a unique circumstance. Take an honest look at your goals and risk tolerance before determining how to spend $50,000. Consider your age, the amount you’ve previously invested, and whether or not you have an adequate emergency fund, among other things.
- A younger investor, such as someone in their 20s or 30s, has a long way to go before retiring. Because of the lengthy time horizon, they can afford to accept some more risk.
- If their objective is to buy a house within the next year, on the other hand, their risk tolerance will be significantly lower owing to the shorter time frame until the money is needed.
Recognize the Type of Investor You Are
It’s crucial to know which sort of investor you are before determining how to invest $50,000. Are you comfortable, for example, choosing particular stocks to invest in? Or do you prefer pooled investments such as mutual funds and exchange-traded funds (ETFs)?
Or maybe you’re just afraid of investing. In this situation, a professionally managed vehicle, such as a target-date fund, or hiring the services of a financial adviser, whether a regular advisor or a Robo advisor, might be the best option for you.
Recognize the Differences Between Passive and Active Investing
Investing may be divided into two categories: active and passive. Someone handles your portfolio for you when you use active investing. They are hands-on when it comes to investing, purchasing, and selling shares. Passive investing is less difficult since it often consists of a combination of mutual funds or exchange-traded funds (ETFs).
Passive investing in an index mutual fund or exchange-traded fund (ETF) can be a good method to put $50,000 to work. To quickly create a well-diversified portfolio, an investor may pick just a few funds representing stock or bond indexes. Many index funds outperform their active counterparts, and they have lower fees than actively managed funds. There are also a handful of active funds that are well-managed.
While choosing the finest actively managed funds might be difficult, they do provide access to some of the greatest investment managers in the business. It doesn’t have to be a binary choice between active and passive. Combining passive and active funds might also be a smart approach.
Ensure the safety of your assets
As cyberattacks become more prevalent, investors must take precautions to protect their assets. We also advocate utilizing a VPN like NordVPN in addition to employing a broker or financial institution with an encrypted website. As cyberattacks become more prevalent, investors must take precautions to protect their assets. We also advocate utilizing a VPN like NordVPN in addition to employing a broker or financial institution with an encrypted website.
The Top Ten Places to Put Your Money Right Now
There are several viable choices for investing $50,000, depending on your circumstances. Determine your financial requirements and objectives first. Then pick where you’re going to deposit your money and which investment app you’re going to utilize. Here are five different methods to invest $50,000.
Invest with the help of a Robo Advisor
A Robo adviser is one of the simplest methods to begin investing. A Robo adviser is an investment product that is still relatively new. Essentially, they invest on your behalf in a range of ETFs based on your specific requirements and risk tolerance. Some can even rebalance your portfolio for you, allowing you to relax and let your money work for you.
The nicest thing about Robo advisers is how inexpensive they are. The average annual net advisory charge is 0.20 percent, whereas Vanguard Digital Advisor® has a net target annual net advisory fee of just 0.15 percent. You may also invest directly in Vanguard’s ETF products, such as Vanguard Total Stock Market ETF and Vanguard Total Bond Market ETF, using their Robo adviser.
Individual equities reflect a single company’s investment. The success of that firm and its shares determines whether you make a profit or a loss on your investment. You may make a lot of money if you invest in the next Apple or Amazon. However, if the firm in which you invest has financial issues, your investment may lose value. Stocks provide the potential for financial gains and, in certain circumstances, dividend income through the price increase.
Dividends are usually paid out every three months. Individual stocks and even fractional shares can be purchased through brokerage accounts such as E*TRADE and TD Ameritrade. You may invest in stocks and ETFs with these bargain brokers, and they’re among the most popular online brokers today.
For individuals wanting to invest in real estate, $50,000 may not be enough to buy an investment property or a home altogether, but it may surely be used as part of a down payment.
REITs – 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, others are traded privately. Office buildings, retail space, residential properties, mortgages, or a combination of these are all examples of REIT assets. REITs are also covered by mutual funds and exchange-traded funds (ETFs). For example, Streitwise makes it possible for nearly anybody with $1,000 to invest in private real estate projects. With Fundrise, you may invest as little as $500 in commercial real estate through REITs.
Crowdfunding – Crowdfunding platforms are another option to invest in real estate. Real estate crowdfunding allows small investors to become shareholders in a real estate venture. Non-accredited investors were previously barred from participating in private equity real estate projects, but with the rise of crowdfunding, many of these opportunities are now available for as low as $5,000. Do your homework before investing, as you would with any other investment. Investigate the underlying property and the crowdfunding platform’s sponsors.
Crowdstreet, which allows you to invest in commercial real estate for free (all costs are covered by the sponsors) and solely provides commercial real estate, is one of the greatest crowdfunding sites in our opinion.
Individual Bonds – Bonds are a type of debt instrument. In essence, an investor makes a loan to a borrower in exchange for periodic interest payments and the face value of the bond when it matures. Bonds exist in a variety of shapes and sizes, including:
- Treasury securities – Treasuries are risk-free investments since they are backed by the US Treasury. They are available in a variety of maturities.
- Corporate bonds are issued by a variety of companies. Their safety is dependent in part on the issuer’s financial situation and capacity to make interest payments and redeem the bonds when they mature.
- Municipal bonds are issued by the state and local governments.
Mutual funds – Mutual funds aggregate money from investors to invest in a certain strategy or asset type. Stocks or bonds, or sub-asset classes within these main categories, might 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 tracks 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 management takes active choices on the securities owned by the fund using these. Expense ratios for these funds are often greater than for index funds.
ETFs – ETFs, or exchange-traded funds, are similar to mutual funds but trade on the stock market. Many ETFs are index funds, and their expense ratios are often modest. On a daily basis, their holdings are made public. Mutual funds, on the other hand, only declare their holdings a few times a year. For iOS and Android, we propose Public, a commission-free stock and ETF trading app. The app allows you to invest in fractional shares of stocks and ETFs and includes a feature that allows you to share your success with your friends.
CDs – CDs, or certificates of deposit, are FDIC-insured savings accounts that typically last six months, a year, two years, or longer. If you don’t leave your money in the CD for the whole time, you’ll face penalties if you take it out early. When it comes to CDs, one technique is to ladder the maturities so that you always have one due at a convenient period, such as every six months. CDs are often offered by banks and other financial organizations. They are also available from some brokerage firms.
Invest in your retirement
- IRA contributions: The annual IRA contribution maximum for 2020 is $6,000, with a $1,000 catch-up contribution for individuals who are 50 or older. If your salary is below the threshold, you may be able to contribute to an IRA.
- Employer-sponsored 401(k): You can contribute as much as you like to your 401(k) or other employer-sponsored retirement plans with your 50k. This raises the amount of money you set aside for retirement. It also ensures that you get the full employer match if one is available. For 2020, the contribution ceiling is $19,500, with a $6,500 catch-up contribution allowed to individuals 50 and older.
Investment Accounts That Are Taxable
It could make sense to create a taxable brokerage account or a mutual fund account, depending on your circumstances. For 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. Taxes and a 10% penalty may apply to investments maintained in an IRA or other kind of retirement plan. Check out CountAbout to be sure you’ll have enough money to retire. You may track your monthly costs as well as any possible passive income with CountAbout’s FIRE widget and visualize them over time.
529 College Savings Plan
Putting some or all of the $50,000 into a 529 college savings plan for your children can be a wise investment. Tuition, housing, books, and a variety of other educational expenses can all be paid for using these programs. Many states provide additional tax benefits to their inhabitants. Each plan has its own set of investments. Many plans also provide an age-based option that adjusts the investment mix as the recipient approaches 18 years old. There are also mutual funds and other comparable investments available.
If you happen to have an additional $50,000 to invest, there are several possibilities to explore. Where you put your money is determined by your financial condition and priorities. Whether you’re a novice or a seasoned investor, any lump amounts should be used to improve your overall financial situation. This might involve increasing your long-term investment portfolio or putting money into an emergency reserve. Every investor should make the most of any additional funds.