Becoming a good investor starts with understanding how investment works, and how to invest your money wisely regardless of the amount. Whether it is $1,000 or $5,000, your ability to make the right investment decision guarantees your wealth creation.
So, if you have a spare $5,000, there are several opportunities that you can invest your money to generate maximum returns.
This article talks about these opportunities in details as well as reasons why you should seek to invest your money.
Continue reading to learn more.
Why You Shouldn’t Keep Your $5,000 at the Bank
Banks are financial institutions built to help you store your money. They promise you maximum security for your money and in some cases, say that they’d give you interest on your money if saved for a long time.
Also, they use competitions and prize-winning programs as incentives to make you keep your money for a long time. And most times, it works.
Here’s what happens beneath all that.
Banks use our money to make additional profits for themselves. They give out this cash as loans and keep the interests they bring to themselves. So, it’s safe to say that they are selling us a mirage.
Because we don’t receive the interest from the money, which somehow makes us feel cheated.
But then again, the bank isn’t a charity organization. It’s a business. And one thing that’s consistent with businesses is that they are established as a source of income. The banks are not left out, as they must make income themselves.
This is why experts advise that a better alternative to leaving your $5k in the bank is to invest your money through advice websites or follow the strategies that will be discussed shortly.
READ ALSO: How to Invest $50k and Get the Best ROI | 2023 Expert Guide
How to Invest $5000
Below are viable ways on how to invest $5,000 to make money. These strategies include;
#1. Online Trading
Online trading is one of the simplest and fastest systems that shows how to invest $5,000 to make good money. To trade, you need to set up a brokerage account.
Online brokerages are investment platforms that offer wealth-creation products like self-directed trading accounts, automated investing accounts, and retirement savings accounts.
So, if you’d like to invest $5,000 without going for large minimum account size requirements, most brokerages allow you to get started for free.
However, you can run into more fees for mutual fund investments, options contracts, and certain retirement accounts.
#2. Choose an Investment Company
There are a lot of investment companies that help you put your capital to good use. And their interest rates are fair depending on the time frame of your investment, especially if you’re investing about $5,000.
Putting your money into an investment company guarantees safety due to the number of professionals available in this industry. You wouldn’t have to be worried about losing your money quickly, even though it’s possible, as investments are all about risks.
The only demerit with several investment companies is the charges they take for helping you build great returns on your investment.
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#3. Securities
Investing your $5,000 into securities like stock, ETFs, Bonds, and Mutual Funds is a great way to make more money.
Stocks: Stocks are available on most exchanges and represent shares, or portions, of ownership within companies. They are also known as equities and are offered for several reasons.
ETFs: When you invest your $5,000 into ETFs, you are placing your money into a fund that invests in various stocks, bonds, commodities, and other investments.
ETFs are similar to stocks since they both trade on stock exchanges. However, they are less risky than stocks since they blend different securities.
Bonds: Bonds are debt securities corporations and governments issue to raise money for certain time-sensitive projects.
In other words, bond investments are like loans, where you are the lender, and the government or corporation becomes the borrower. Once your bond has matured, you’ll get back the face value of your initial investment plus interest.
Mutual Funds: Mutual funds are managed by companies that pool money from multiple investors to invest in stocks, bonds, and other securities. So when you invest in mutual funds, you’re purchasing a small share of ownership in that fund, which gives you rights to the profit it produces.
#4. Peer to Peer Lending
Another option to invest your $5,000 is peer-to-peer lending. Peer to Peer lending is simply a system wherein you lend money to your peers and demand interest after some time.
Unlike other investment channels, peer-to-peer lending gives you a strong capital guarantee. And if you have disciplined and honest peers, you’re sure that your money will come in quickly and safely as well.
If you don’t have any folks around who need $5,000, you can find peer organizations that can use your money to fund some of their projects and are willing to pay the interests you want.
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#5. Real Estate
Real estate is another viable option where you can invest your $5,000. You have three options when investing in real estate: Buy properties on your own, invest through real estate investment funds, or grow your money through crowdfunding platforms.
Alternatively, Real Estate Investment Trusts (REITS) can be a great choice if you don’t want to buy and flip properties alone.
REITs are companies that own and manage income-generating real estate assets. And like stocks, you can buy and sell REITs on most exchanges, although some are still privately traded.
#6. Open an IRA
It would be best to consider opening an IRA to invest your $5,000. Your income depends on whether you opt for a Roth or a traditional IRA.
Bear in mind that to be eligible for a Roth IRA, your annual income must be less than $139,000. Traditional IRAs do not have salary limits.
Your contributions to a traditional IRA are tax-deductible in the year you make them, and you’ll pay taxes on withdrawals based on your income. Roth IRA contributions aren’t tax-deductible, but you won’t pay taxes when you withdraw.
In addition to the tax benefits, an IRA is an excellent way to enhance your retirement income and any other income streams you might have.
#7. Start a 529 College Savings Plan
Starting a 529 College savings plan is ideal if you have children or plan to have children who you’ll fund their college education.
A 529 savings plan offers tax-deferred growth of your funds plus tax-free withdrawals when those funds are used for education-related expenses.
This makes it a good option to invest $5,000, especially considering the average tuition cost at a public and private university.
#8. Fund your 401(k)
If you’ve not thought about your retirement funds, now is a good time to do so. Fund your 401(k) account.
Although you can’t drop the $5,000 directly into the account, the funds are taken directly from your paycheck; you can use the extra cash in your bank account to increase your contribution.
This is a good strategy if you have an employer match 401(k) account. Hence, it’s important you contribute the maximum amount necessary to take advantage of your employer’s match.
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#9. Work with a Robo advisor or financial advisor
If you’re unsure what to do with your $5,000, you may want to consider working with a robo advisor. In other words, placing your money in the hands of a robo advisor to make the decisions for you.
A Robo advisor digitally manages your portfolio based on a set of algorithms. Additionally, they offer rebalances and tax-loss harvesting, among other functions. While some Robo advisors still offer human advisors, they are better as investment managers.
Conversely, financial advisors offer top-notch advice on the best option for your money, whether it’s investing, retirement planning, estate planning, or anything else.
Of course, you’d pay for these services, but the value they provide is incomparable.
#10. Invest in Gold
Another option to consider investing your $5,000 in is the Gold market. According to Market Insider, the price of gold sits at $1,810 per troy ounce.
This is above the projected $1,700 price, meaning the market has great prospects.
Now you don’t need to spend all the money on purchasing gold; you can buy some amount and then watch it multiply within a few weeks or months.
Bottom Line
There are several ways to invest your $5,000. With these options, you can generate more income while focusing on several other income-producing opportunities.
So, instead of keeping your money in the bank, consider investing it.
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