Knowing how to properly invest $50k is one of the solid ways to building long term wealth. You must be able to build multiple streams of income if you want to generate wealth, while you focus on other areas of life.
So, if you have an extra $50k from all the expenses and bills, the big question is what will you do with it that can multiply the money.
Generally, the answer to this question will be to invest. But how do you know what to invest in?
This article talks about the best ways to invest $50k and possible factors that can influence your investment decision.
Read on to find out more.
Table of contents
- Why You Shouldn’t Keep Your $50k at the Bank
- What You Should Know Before You Invest Your $50k
- Factors that Determine How to Invest $50k
- How to Invest $50k
- There Are Many Ways to Invest $50k
- Article Sources
Why You Shouldn’t Keep Your $50k 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 an interest in 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 these cash as loans and keep the interests they bring to themselves. So, its safe to say that they sell us a mirage.
Because we don’t receive the interests from the money. And this 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 have to make an income for themselves.
This is why experts advise that a better alternative to leaving your $50k in the bank is to invest your money through advice websites or follow the strategies that will be discussed shortly.
What You Should Know Before You Invest Your $50k
Before investing $50k, its important you hold on and do a thorough analysis of your finances. In other words, you need to make sure that your finances are in order, and you’re not making a huge financial mistake.
Below are a few ideas to go over before you get into investing.
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#1. Have an Emergency Fund
Emergency funds as the name implies means funds that are untouched and reserved somewhere safe for emergency purposes. Ideally, it should be around three to six months of expenses.
You can invest this money in somewhere safe and liquid such as a savings account, or money market or any other suitable safe liquid vehicle.
Keep this money safe and don’t take any risks with it.
#2. Pay Off Debt
You can have a debt and want to invest $50k somewhere. A wise thing to do is to pay off your debt especially if it has a high-interest rate.
For example, if you have a credit card debt of $50,000 at an interest rate of 30%, paying off that debt essentially offers a 30% return on your money.
More so, paying off your debt provides financial freedom for you to venture into other businesses.
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#3. Understand the Difference Between Passive and Active Investing
There are majorly two ways of investing: Active and Passive investing. In active investing, someone manages your portfolio for you. They make decisions on investing, buying, and selling stock as needed.
While passive investing on the other hand usually includes a mix of mutual funds or ETFs and is less complicated.
Passive investing using an index mutual fund or ETF can be a beneficial way to invest $50,000.
An investor might choose just a few funds covering stock or bond indexes to easily build a well-diversified portfolio.
Choosing between active and passive investing shouldn’t be an either-or decision. Mixing the both together can be a good strategy as well.
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Factors that Determine How to Invest $50k
There are a couple of factors that will determine how to invest $50k. Some of them include;
#1. Financial Goal
The financial goal you aim to achieve from investing your $50,000. What do you intend to get from this $50,000? Is it just a means to diversify your investment portfolio, or to get a house, or to be used for your retirement fund?
Time plays a major factor in determining how you invest your $50k. Would you want your money back in three weeks or a month? If you do, you’d most likely want to avoid strategies that invest heavily in inequities.
If your investment is for retirement, your time horizon will be affected by your age and the years between now and when you plan to retire. The more time between now and your retirement age, the more time you have.
#3. Risk tolerance
Investment is all about risk taking. This simply means, in as much as you invest money to make more money, you should also know how much of your money you can afford to lose.
For example, if without your $50,000 you won’t be able to pay next month’s mortgage, then you have a very low risk level. Hence, you’d want to put your money somewhere that is less risky.
See a list of the 10 best low risk, high reward stocks to invest in.
Circumstances are factors that determine how much you have now, how much you’d have in the future, and how much you’d be willing to lose.
Situations like your age, health status, income status, marital status, and saving life will determine to a great extent if investing your $50k is a good idea at the moment.
Your ability to control and manage your emotions will go a long way in dictating where you should invest. The last thing you want to do is start trading on your own and end up panic selling or buying when the market dips.
Any investment that is at all volatile will require some strong willpower in sticking to your investment strategy through downtimes.
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How to Invest $50k
Depending on your goal, there are a number of solid options for investing $50k. Remember, you must first determine your risk tolerance level and decide where you want to invest.
Below are ten ways to invest $50k.
#1. Individual Stocks
Individual stocks simply means investing in a particular company. Your profit or loss on that investment is determined by the performance of the company and its stock.
For example, if your invest in Apple, there’s a high chance you’d earn a huge profit. But if the company you invest in experiences some financial difficulties, then your investment can decline in value.
Stocks offer opportunities for capital gains through price appreciation and in some cases, dividend income as well. Generally, dividends are paid quarterly.
You can invest in individual stocks and fractional shares through different brokerage accounts.
#2. Individual Bonds
Bonds are debt instruments. Basically, the investor makes a loan to a borrower in return for periodic interest payments and then the bond’s face value when the bond matures.
Bonds come in several varieties such as;
- Corporate bonds — Corporate bonds are issued by various corporations. Their security is in part based on the financial state of the issuer and their ability to make interest payments and to redeem the bonds when they mature.
- Municipal bonds — Municipal bonds are issued by state and local governmental entities. Interest on these bonds is generally exempt from federal taxes.
- Treasury securities — Treasuries come in several maturities and are considered risk-free assets because they are backed by the U.S. Treasury.
See the Best Short-Term Investments In 2023
#3. Invest in Real Estate
Another option to invest your $50k into is in real estate. Although $50k may not be enough to buy an investment property or a place to live, it is enough for a down payment on a property.
Alternatively, you can invest in real estate through REIT known as Real Estate Investment Trust. REITs are usually publicly traded like stocks on the stock exchange, but some are privately traded.
REIT investments include office buildings, retail space, residential properties, mortgages, or some combination of these.
Another option to invest in Real Estate is through crowdfunding platforms. Real estate crowdfunding gives small investors the opportunity to buy into a property deal as a shareholder.
As with any investment, do your homework well before you choose which option to invest in.
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CDs, known as Certificate of Deposits are FDIC-insured savings vehicles that are set for a particular duration, such as six months, a year, two years, or more. If you fail to leave your money in the CD for the stated term, you’d face early withdrawal penalties.
A smart strategy for CD is to ladder the maturities so that you always have one due at some interval that suits you, such as every six months.
Banks, brokerage firms and other financial institutions often offer CDs.
#5. Mutual Funds
Generally, mutual funds collect investors’ money to invest in a strategy or particular asset class.
This could be stocks or bonds, or sub-asset classes within these broad categories. Mutual funds are usually the investment of choice in 401(k) plans.
Additionally, mutual funds can be a passive index funds that tracks a market index like the S&P 500. More so, index funds are usually low-cost funds.
Mutual funds can be actively managed, which means that the manager makes active decisions that influences the securities held by the fund.
#6. Taxable Investment Accounts
Another option you can opt for depending on your circumstances is to open a taxable brokerage account or an account with a mutual fund company.
These accounts offer a good level of diversification for those who have sufficient investments in retirement accounts and can be more liquid if they are needed.
Investments held in an IRA or other type of retirement account could be subject to taxes plus a 10% fine if funds are withdrawn before the age of 59½.
#7. 529 College Savings Plan
Using some or all of your $50k to create and fund a 529 College Savings Plan for your children can be a good investment in their future.
These plans can be used to pay the cost of tuition, housing, books, and lots of other college expenses. Many states offer additional tax incentives for residents of that state.
The 529 College Savings Plan offers investment options that vary. And many plans offer an age-based option that changes the investment mix as the beneficiary gets closer to age 18.
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ETFs or Exchange-Traded Funds are much like mutual funds but are traded like stocks. Many ETFs are index funds and generally have low expense ratios.
Their holdings are transparent on a daily basis. While mutual funds, on the other hand, report holdings only a couple of times a year.
There are many ETFs to choose from. Online investing platforms are particularly valuable in figuring out which ETFs to buy, and how to divide your portfolio among them.
#9. Invest in your Retirement
The best time to start saving for your retirement is yesterday. Fund your retirement account as aggressively as you can. You can invest in your retirement through retirement accounts such as IRA or 401(k)
- IRA contributions: The 2021 and 2020 annual contribution limit for an IRA account is $7,000 and $46,000 for those who are age 50 or older. You may be able to contribute to an IRA if your income is below the threshold.
For more information, read this 401K VS IRA: Is A 401k An IRA | Full Comparison And Similarities
- Employer-sponsored 401(k): If your company offers a 401(k) that matches employee contributions then you should contribute towards it. The annual contribution limit for 401(k) account for 2021 and 2020 is $26,000 and $19,500.
So, you can use your $50k to contribute the maximum amount to your 401(k) or other employer-sponsored retirement accounts.
This increases the amount you save for retirement. And it helps ensure that you receive the full employer match if one is offered.
Find out more information by reading this Should I Invest in 401k? What Must I know in 2023
#10. Invest with a Robo Advisor
One of the easiest way to invest your $50k is with a robo advisor. A robo advisor is a new investment product. Generally, they invest in a variety of ETFs on your behalf, based on your unique needs and risk tolerance.
Some robo advisors rebalance for you, allowing you the comfort of relaxing and letting your money work for you.
Companies like Wealthfront and Betterment win the competition as the best Robo-advisors.
They have computer algorithms that do all the dirty managerial work but on the front lines are human advisors who carefully explain the recommendations made by the computers, and make adjustments based on your feedback.
The best part about Robo advisors is their low cost. Your $50,000 more than meets the minimum balance requirement for both.
There Are Many Ways to Invest $50k
If you have an extra $50,000 to spare for an investment, there are lots of options to consider. The option you eventually go for depends on your financial situation and priorities.
More so, as an investor, you should take advantage of any extra money to enhance your financial position.
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