How To Invest 50K: 8 of the Best Ways
So, you’ve found yourself with $50,000 or so to invest. Maybe you’ve racked up some savings because you’ve been diligent about putting aside a little from each paycheck. Maybe you got an unexpected windfall in the form of an inheritance you weren’t expecting or a payout from insurance or a settlement. But now you need to know how to invest that money.
Read: Looking To Diversify In A Bear Market? Consider These 6 Alternative Investments
Here are some ways to invest 50K:
Savings Accounts
Certificates of Deposit
Mutual Funds
Exchange-Traded Funds
Financial Advisor
Invest on Trading Platforms
Real Estate
Invest in Yourself
Having some money and knowing what to do with it are two different things. With $50,000, you have a lot of options, but fear of making a mistake can be paralyzing. Here are some things to consider, and some suggestions for what to do with $50,000.
Make Sure You Are on Solid Footing
The first thing to do is to make sure that your financial house is in order. Ask yourself these questions:
Do I have enough money set aside for an emergency? You should have three to six months’ worth of expenses in the bank in case you unexpectedly lose your job or have a costly home or car repair bill. This amount should be in cash in the bank for easy access.
Is my expensive debt paid off? A mortgage and a car payment are facts of life. But if you have credit card debt you are carrying over month to month, get rid of that before you do anything else. Think of it this way: You may be paying 25% or more in annual interest on credit card balances. Paying off this debt is like getting a guaranteed 25% return on your investment. Where else can you get that?
Am I saving enough for retirement? There are limits to how much you can save in a 401k, IRA or another retirement account, so make sure you’re contributing as much as you can. At least contribute enough to get the company match, if you’re offered one. It’s free money and failing to take advantage of it is literally leaving money on the table.
If you can answer “yes” to the three questions above, it’s time to start looking at the best way to put that $50,000 to work for you — and if any of your answers are “no,” address those first.
Safety First
If you are most concerned about not losing any money, here are some options for you to keep that money safe, while earning a little — sometimes very little — return.
1. Savings Accounts
You could park your $50,000 in a savings account or money market account at the bank. It will be safe there — deposits in banks are FDIC insured, which means that, even if the bank becomes insolvent, your money will be protected. You’ll earn a little bit of interest, but not much. For example, Bank of America, Member FDIC, pays Annual Percentage Yield on savings accounts. Ally Bank, an online bank, pays APY. Neither of these accounts pays enough interest to keep pace with inflation, but your money will be there when you need it, even if it won’t buy you as much as it would today.
2. Certificates of Deposit
If you want to invest your money for a specific period of time at a guaranteed rate of interest, a CD may get you a better return than a savings account. A CD is purchased at a bank, so your deposit is FDIC-insured. You can choose the term, or the length of time you will leave the money deposited. When the term is up, you can take your money, including the interest, and invest in another CD or do something else with it.
CD rates depend on how much money you are depositing and how long you’re willing to leave it there. For example, if you invest $50,000 in a CD at Capital One for six months, you’ll earn APY. Invest it for a year and you’ll earn APR. And if you’re willing to leave the money there for five years, you’ll earn APR.
Invest in the Market
Recent history notwithstanding, investing in the stock market has historically been a good idea over time. The market has its ups and downs — sometimes way up and way down — but over the long haul, the market goes up.
If you had invested your $50,000 in the stocks that make up the Dow Jones Industrial Average just five years ago, your investment would be worth $63,840. If you had done so 20 years ago, your investment would be worth $120,300 today.
Of course, there is risk involved when you invest in the stock market. You could lose money, and you almost certainly will see your account balance go down at some point. But there are ways to reduce your risk. Here are some options to consider.
3. Mutual Funds
Mutual funds are a way to invest in the stock market without putting all your theoretical eggs in one basket. When you buy an individual stock, you are taking a chance that the company’s value might decline significantly. They may release a product that doesn’t sell, for example, or they may have a public relations disaster when the CEO gets into trouble. When you buy a mutual fund, however, you are buying a “basket” of stocks — a little bit of each of many different companies, which reduces your reliance on the success of a single company.
Mutual funds have a portfolio manager who buys and sells positions within the fund, according to which companies they think will perform best. The portfolio manager’s job is to get rid of underperforming investments and take on new investments that will provide a higher return. These professionals do the research, so you don’t have to.
4. Exchange-Traded Funds
Exchange-traded funds are similar to mutual funds except that they are passively managed, instead of being actively managed. They are designed to mimic the return of an index. This can be a broad index, like the S&P 500 or the Russell 2000, or it can be a subset of a larger index, like an ETF that tracks the semiconductor sector or the retail sector.
5. Get Some Advice
If you are new to investing, you may want to get some professional advice about what to do with your money. While a full-service financial advisor may not be willing to take you on with $50,000 in investible assets, there are many online brokers that can provide you with some advice and direction. Fidelity Investments and Vanguard have good customer support.
6. Do It Yourself
If you want to try your hand at picking your own stocks, low- or no-cost trading platforms like Robinhood and Webull will help you trade for free. These platforms provide research information and even advice, but the ultimate decision to buy or sell is up to you. If you want to trade on your own, you may want to start with a small part of your $50,000 nest egg before going all in.
Other Ways To Invest Your Money
Investing doesn’t always mean the stock market. Here are some other ways to get a return on your money.
7. Real Estate
Fifty thousand dollars is a down payment on a house if you’re currently renting. Owning your own home comes with responsibilities, but it also has its rewards. In addition to the satisfaction of owning your own place, you get to enjoy the appreciation in value that real estate provides over time.
If you are already a homeowner, you may be able to increase your home’s value by investing some or all of your $50,000 into your home. Traditionally, kitchen and bathroom renovations offer the best return on investment, but if you’ve always dreamed of having a man cave or a she shed, you can go that route too.
8. Invest in Yourself
Getting an advanced degree or a professional certification could result in a better job with higher income every year for the rest of your working life. If you’re so inclined, furthering your education can pay big dividends, both in your paycheck and in your job satisfaction.
Final Take
The most important thing you can do with a cash windfall is to plan. Think about what you want the money to do for you, then work out a plan to make it happen. It may take some time and determination, but careful planning will help you realize the goal you set for your money.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Oct. 10, 2022.
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This article originally appeared on GOBankingRates.com: How To Invest 50K: 8 of the Best Ways
