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Have you managed to set aside $50,000 and now you're wondering about the best way to grow it? That's a great position to be in. However, deciding how to best use it for your financial advantage can be a bit overwhelming. So I've created a list of 11 ideas to help you start putting your money to work.
You can also learn how to invest $50k in Australia here.
The list is designed to balance potential returns, risk level, cost, and flexibility. However, the “best” investment option is highly dependent on your financial situation, goals, and risk tolerance.
Here are the nine best ways to invest $50k and increase your money's value.
Table of Contents
1. Open a Brokerage Account
If you're the kind of person who likes to take the wheel when it comes to financial matters, opening a brokerage account could be the first step in your investment journey. A brokerage account offers plenty of investment options – including individual stocks, bonds, ETFs, and mutual funds. Which I'll explore in greater detail below.
Imagine this as your investment playground. It's where you can take control and strategize your investments according to market conditions and your personal financial goals.
Remember, though, that while opening a brokerage account offers you plenty of flexibility, it also requires a sound understanding of financial markets and investment vehicles to be benficial.
2. Invest in Your Retirement Plans
Next up is retirement savings, a vital investment avenue for anyone who dreams of a financially secure future.
If you're fortunate enough to have an employer who offers a 401(k) or similar plan and matches your contributions, you've hit a gold mine. Investing in such a plan is like doubling your money instantly, thanks to your employer's matching contributions.
The benefits don't stop at the match. There's also the potential for tax advantages. Money you contribute to your 401(k) is usually tax-deductible in the year of contribution, reducing your taxable income and providing immediate tax savings.
You can learn more about 401(k) and the annual contributions limits here.
A close cousin to the employer-sponsored retirement account is the Individual Retirement Account (IRA). An IRA allows you to enjoy many of the same benefits of a retirement account, such as tax advantages, but with more flexibility as it's not tied to your employer.
With an IRA, you have a choice between a Traditional IRA, which provides a tax deduction for contributions now, and a Roth IRA, which provides tax-free withdrawals later in retirement. Keep in mind that IRA contributions have annual limits, so planning is key.
You can learn more about Roth IRAs here.
3. Exchange Traded Funds (ETFs)
Exchange Traded Funds, or ETFs, have been steadily growing in popularity. Why? Because they offer investors a way to gain exposure to a diversified portfolio of securities, like a mutual fund, but with the added benefit of being traded like a stock.
ETFs offer another advantage: they typically have lower expense ratios than mutual funds (which I will talk more about later on). That means less of your money is eaten up by fees, and more of it stays invested and growing. If you're seeking a balance of cost efficiency, diversification, and flexibility, ETFs are worth a serious look.
Best Overall ETF
I'd recommend the iShares Core S&P 500 ETF above any other actively or passively managed fund. They purchase all of the stocks in the S&P 500 index, with annual fees of just 0.03%.
The S&P 500 Index is essentially a basket that holds shares from 500 of the largest companies in the U.S., spanning various industries. Purchasing an S&P 500 index fund gives you small pieces of these companies, which offers you broad exposure to the U.S. market.
Investing in this fund is one of the best ways to grow your money with minimal effort or investing know-how.
4. Mutual Funds
Similar to ETFs, mutual funds offer investors an easy way to gain exposure to a diversified portfolio of securities in one fell swoop. If you prefer a hands-off approach to investing, this is an attractive option, as mutual funds are managed by professionals.
However, be aware that this convenience comes at a cost. Mutual funds often have higher expense ratios (annual fees) than ETFs, which can reduce your net returns over time. When considering mutual funds, it's important to balance the benefits of diversification and professional management with the potential drag of higher costs.
Best Mutual Funds
Typically the Large Growth mutual funds offer the best long-term returns. Dave Ramsey recommends investing 15% of your after-tax income in mutual funds to build wealth long-term.
Here are three of the largest mutual fund companies in the US:
- BlackRock Funds (iShares)
- Charles Schwab
In the era of digitalization, robo-advisors are the new financial planners. They offer an automated, algorithm-driven financial planning service with minimal human intervention.
Here's how it works: you provide information about your financial situation and goals, and the robo-advisor takes this data to suggest investments and build a portfolio for you. If you're a novice investor, or simply prefer a hands-off approach, the lower fees and ease of use of robo-advisors could make them the right choice for you.
6. Hire a Financial Planner
If the human touch is important to you, consider hiring a financial planner. A good financial planner can provide personalized advice based on your overall financial situation, taking into account your complete financial picture.
Keep in mind, though, that this personalized service often comes with higher fees than robo-advisors. It's also critical to choose a fee-only financial planner (one who gets paid only by you), rather than a fee-based planner (who may earn commissions from recommending certain investments).
It's also important to make sure your financial planner/advisor is a fiduciary. A fiduciary financial advisor is a professional obligated to act in their clients' best interests. They must prioritize the client's needs over their own in financial advice or asset management. Unlike non-fiduciary advisors, who recommend suitable but not necessarily best options, fiduciaries must propose the most beneficial investment options for the client.
Regulated by the Securities and Exchange Commission or state regulators, they can be held accountable for not fulfilling their fiduciary duties.
7. Buy a Rental Property
Investing in real estate, specifically through buying rental properties, offers a unique and tangible method for your money to grow. By investing $50,000, you could potentially make a 20% down payment on a property valued at $250,000, effectively expanding your investment potential and avoiding lenders mortgage insurance. Rental properties can not only appreciate in value over time but can also generate a steady monthly income.
It's important to note that this form of investment is not effortless. Managing rental properties requires considerable time and effort. But for those who prefer a more hands-off approach, hiring a property manager is an option. Property managers handle the day-to-day operations of rental properties, from maintenance and repairs to tenant issues, usually for a percentage of the monthly rent or a flat fee.
However, this path does come with inherent risks, including property damage, real estate market fluctuations, and periods of vacancy. But if you're ready to embrace these challenges, and perhaps delegate the property management responsibilities, rental properties can indeed be a profitable investment.
Bonds, loans made by you (the investor) to a borrower (often a corporation or government entity), are generally considered lower-risk investments. The borrower guarantees to pay you back, with interest, providing a steady and predictable income stream.
However, the trade-off for the lower risk is often lower returns. Bonds have traditionally had lower returns than riskier assets like stocks. Thus, while bonds can be an important part of a diversified portfolio, they probably shouldn't be the only component.
US Treasury Bonds
U.S. Treasury bonds stand as a long-term, secure investment, offering an ongoing stream of passive income. If stability is a high priority for your portfolio, dedicating a portion of your $50,000 to these bonds could be a wise move.
Issued by the U.S. government, Treasury bonds are considered one of the safest investment vehicles available. The risk of default, or not having the loan repaid, is minimal. However, it's important to note that the interest rates for these bonds, while consistent, are not notably high. They do, however, make regular interest, or ‘coupon,' payments, creating a steady income stream for the bondholder.
For investors seeking stability and a consistent return, U.S. Treasury bonds are often a top choice. But if your emergency fund is fully-stocked and your risk tolerance is higher, the potential for larger returns might make stocks a more attractive option.
Keep in mind that not all bonds carry the same level of safety. The bond market includes a variety of offerings, such as Premium bonds, Corporate bonds, and Junk bonds, each carrying their own risk-reward profile. For the sake of maintaining stability in your portfolio, U.S. Treasury bonds are generally the safest choice.
9. Contribute to an HSA
Health Savings Accounts (HSAs) are distinctive financial tools that offer a triple tax advantage—contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
One often overlooked aspect of HSAs is that the funds contributed can be invested, much like a retirement account, providing potential for growth over time. You have the ability to choose where your HSA money is invested, allowing you to tailor your investment strategy to align with your financial goals and risk tolerance.
However, eligibility for an HSA is restricted to individuals enrolled in high-deductible health plans. Moreover, the funds can only be withdrawn without penalties for eligible healthcare costs. Otherwise, non-medical withdrawals are subject to taxes and potentially a penalty, depending on your age. Despite these constraints, if you're eligible, an HSA can be a valuable part of a holistic financial strategy.
10. Full-Service Brokers
If you're considering stock investment, engaging a full-service stockbroker can be beneficial. These brokers extend their services beyond simply executing buy and sell orders for securities (stocks and bonds, ect). They cater to investors seeking comprehensive professional investment advice, strategic portfolio management, and personalized service.
While this premium service does come with a higher cost, typically charging 1-2% of the total assets managed per year, the added expense could be a worthwhile investment if you are new to the stock market or prefer a hands-off approach to investing. By leveraging their expertise, you can make informed decisions about your $50k investment and stayinformed about market trends and opportunities.
11. Invest in a 529 College Savings Plan
If your financial goals include saving for your child's future education costs, consider a 529 college savings plan. Earnings in a 529 plan grow tax-free and can be withdrawn tax-free if used for qualified education expenses like tuition, fees, books, room and board, and more. However, if you withdraw funds for non-education-related expenses, you'll face taxes and penalties.
These plans offer great benefits for those with specific educational savings goals but aren't versatile as general investment accounts.
The right 529 plan will give you the option to change the beneficiary to another family member. So if your firstborn doesn't want to go to college, you can use the funds for the next in line!
What Will Happen If I Invest $50,000 in Stocks?
Here is a graph showing what a $50,000 investment at age 30 would look like while growing at average stock market returns of 7% annually until age 65.
I made this graph with a greatcompound interest calculatorcreated by ASIC.
You can see from the graph that if you were to throw $50,000 into an S&P 500 index fund at age 30, by the time you hit 65, it could have grown into a whopping $533,829.
And the best part? You can make your wealth snowball even bigger if you keep investing in index funds all throughout your working life.
How to Invest $50k Summary
There we have it – your roadmap to navigate the exciting world of investment with your $50k. Whether it's the stock market, real estate, retirement savings or even a child's education, there's an opportunity waiting for you.
Keep in mind, the best investment strategy will always be the one that aligns with your personal goals, risk tolerance, and financial situation. So, whether you're all-in on high-risk, high-reward options or prefer a slow and steady approach, stay true to your financial journey.
And if you're not quite at the $50k mark yet, don't worry about it. I've got articles for investing smaller amounts too:
- How to Invest $1000
- How to Invest 20k
As an investment enthusiast with a deep understanding of various financial strategies, I can provide valuable insights into the concepts mentioned in the article. My expertise lies in analyzing investment options, risk assessment, and optimizing financial portfolios for growth. Now, let's delve into the key concepts covered in the article:
Open a Brokerage Account:
- A brokerage account is a versatile tool for individuals who prefer hands-on financial management.
- It provides access to a variety of investment options, including individual stocks, bonds, ETFs, and mutual funds.
- Requires a solid understanding of financial markets and investment vehicles to maximize benefits.
Invest in Your Retirement Plans:
- 401(k) and IRA are essential retirement savings avenues.
- 401(k) offers employer matching contributions, doubling the invested amount instantly.
- IRAs provide flexibility and tax advantages, with options like Traditional and Roth IRAs.
Exchange Traded Funds (ETFs):
- ETFs are gaining popularity for providing exposure to diversified portfolios like mutual funds.
- They are traded like stocks and often have lower expense ratios than mutual funds.
- The iShares Core S&P 500 ETF is recommended for its broad exposure to the U.S. market.
- Managed by professionals, mutual funds offer a hands-off approach to investing.
- They provide diversification but may have higher expense ratios compared to ETFs.
- Large Growth mutual funds, such as those offered by BlackRock, Vanguard, and Charles Schwab, are highlighted.
- Robo-advisors automate financial planning with minimal human intervention.
- They use algorithms to suggest investments based on user-provided financial information.
- Suitable for novice investors or those preferring a hands-off approach.
Hire a Financial Planner:
- A financial planner offers personalized advice based on an individual's overall financial situation.
- Choosing a fee-only planner who acts as a fiduciary is crucial for unbiased recommendations.
- Higher fees compared to robo-advisors, but offers a human touch to financial planning.
Buy a Rental Property:
- Real estate investment through rental properties allows for tangible growth.
- Potential for property appreciation and a steady monthly income.
- Involves management responsibilities, but property managers can handle day-to-day operations.
- Bonds are considered lower-risk investments, providing a predictable income stream.
- U.S. Treasury bonds are highlighted for stability and minimal risk of default.
- Various types of bonds with different risk-reward profiles are mentioned.
Contribute to an HSA:
- Health Savings Accounts offer a triple tax advantage for eligible individuals.
- Contributions are tax-deductible, funds grow tax-free, and withdrawals for medical expenses are tax-free.
- HSA funds can be invested, providing potential for growth over time.
- Full-service stockbrokers offer comprehensive investment advice and portfolio management.
- Higher cost, typically 1-2% of total assets managed per year.
- Suitable for those new to the stock market or preferring a hands-off approach.
Invest in a 529 College Savings Plan:
- 529 plans are designed for saving for education costs with tax advantages.
- Earnings grow tax-free and can be withdrawn tax-free for qualified education expenses.
- The flexibility to change the beneficiary is highlighted.
In summary, the article provides a comprehensive guide on how to invest $50,000, considering factors such as risk, return, cost, and flexibility. The key is to align investment strategies with individual goals, risk tolerance, and financial situations. Whether it's the stock market, real estate, retirement savings, or education, there are diverse opportunities for investors at different stages of their financial journey.