Have you recently found yourself with $10,000 burning a hole in your pocket? While $10k may not seem like a life-changing sum of money, if invested properly over time, it could turn into a very neat savings.
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Whether it’s a windfall, an inheritance, or a winning lottery ticket, let’s look at the best ways to invest $10,000.
Reading: If you had 10000 to invest
open a rage
Boosting your retirement savings is a great use of $10,000. If you don’t already have one, consider opening and funding an individual retirement account (IRA).
An IRA is your preferred option if you don’t have a 401(k) plan at work. It’s also a great option if you want better investment options than you get with your workplace retirement plan. The best IRA accounts allow you to choose from a wide range of asset classes, giving you additional flexibility.
another strategy to consider is a roth rage. Contributing to a traditional IRA gives you an upfront tax deduction, while a Roth IRA gives you tax-free withdrawals in retirement. plus, the rules allow you to make tax-free withdrawals even before you reach retirement age.
In 2022, you can contribute up to $6,000 per year to an IRA, or $7,000 per year if you’re age 50 or older. maximizing your contributions can help you stay on track to reach your retirement goals, potentially leaving you with a few thousand dollars to invest in some of the ideas below.
invest in mutual funds and etfs
mutual funds and exchange-traded funds (ETFs) help make investing easy, and the best funds charge minimal fees.
These pooled investment vehicles hold portfolios of stocks or bonds and aim to achieve clearly defined goals. things like investing in a specific market sector, generating cash flow, tracking the price of a commodity like gold, or emulating the performance of a market index like the s&p 500.
Regular investors can buy shares of any amount of funds. When you invest, each fund’s management team does the hard work of keeping the portfolio on track. In exchange for this convenience, the funds charge an annual spending fee, which is expressed as a percentage of your total investment.
You can buy mutual funds and ETFs using a brokerage account or an IRA. Vanguard is widely recognized as a leading provider of both types of funds. See our lists of Best Vanguard ETFs and Best Vanguard Mutual Funds for more information.
create a stock portfolio
Buying individual stocks is riskier than investing in mutual funds and ETFs. But for self-directed investors who want to take the time to learn about public companies and do the research, this could be a great way to invest $10,000.
as you consider your options and research stocks, remember the importance of diversification in a word, don’t put all your eggs in one basket. No matter how much you love a certain stock or company, you should never buy $10,000 of a single share.
Instead, build a stock portfolio with a mix of different individual stocks, preferably ones that offset each other’s risks. For example, if you invest in an oil company, which should do well if the price of oil goes up, also buy shares of an airline, which should do well if the price of oil goes down.
invest in bonds
If you’re looking to generate income, bonds could be a worthwhile investment for $10,000.
When you buy bonds, you are lending money to a company or government. you agree to hold the bonus for a period of time, and at the end of this period, the issuer of the bonus will return your money to you. meanwhile, the issuer pays you interest at a fixed rate periodically.
Remember, it is not impossible to lose money by investing in bonds. If you want to sell your bond before its term is up, you may be able to find a buyer on the secondary market, but you may have to accept a lower price than you paid depending on market conditions.
also, if the issuer of the bond had financial problems, it could stop paying or even stop paying its principal investment.
Bonds with higher interest rates (so-called junk bonds) tend to be riskier. Like any investment, there is always a trade-off between higher risks and higher rewards. You can buy bonds through most brokerage platforms that offer stocks.
buy real estate with reits
In today’s real estate market, $10,000 won’t get you very far when it comes to buying property. but there is more than one way to invest in real estate.
Try real estate investment trusts (REITs), for example, which are a type of publicly traded company that can expose you to many different types of property.
Most REITs focus on one type of real estate, such as commercial property or residential real estate, although some own a variety of different property types. To qualify as a REIT, companies must distribute at least 90% of their taxable income to shareholders, which also makes REITs a good way to generate income.
Like regular stocks, Reits are highly liquid. that makes it easy to withdraw your investment and move your money elsewhere. Compare that to owning physical real estate, where selling is a long and expensive process.
prepare for health care costs with an hsa
A health savings account (HSA) allows you to save and invest for future health care costs. Just remember, you can only open and fund an HSA if you have a high-deductible health care plan.
You can contribute up to $3,650 to an HSA in 2022. In return, you get three valuable tax benefits.
First, you can deduct your contributions from your income tax. Once the money is in your account, you can invest it in different mutual funds and exchange-traded funds (ETFs), depending on your HSA provider.
Second, it delays income taxes on your earnings as long as they remain in the account.
Third, when you spend money on health care costs, you withdraw money from an HSA tax-free. That’s right, you never owe capital gains tax if you use withdrawals for qualified medical expenses.
If you don’t need the money for health care, you can also use an HSA for whatever you want once you turn 65. You’ll have to pay income taxes on the withdrawals, but there are no other penalties.
are you considering cryptocurrencies? be careful
Until very recently, cryptocurrencies were the new hot investment that everyone wanted a piece of. But if you’ve been following the news, you probably already know that cryptocurrencies have fallen from grace, thanks in part to massive market volatility.
However, even before recent market events, cryptocurrencies had been experiencing spectacular gains and stomach-churning losses. Given the uncertainty and sheer amount of risk involved with cryptocurrencies, you’d probably be better off looking elsewhere besides crypto for places to invest $10,000.
However, if you’re serious about investing in bitcoin or ethereum, make sure it’s money you can afford to lose. Also, consider making cryptocurrencies only a very small part of your overall portfolio, no more than 5%. For more cryptocurrency investment ideas, check out our list of the top cryptocurrencies.
focus on the long term
investing is a long game. Regardless of the assets you choose to purchase with your savings, the return on your investment will see gains and losses over the years. And that’s to be expected: your job is to stay focused on the future.
If you manage to earn a 10% return on your investment every year for 30 years, your $10,000 could grow to as much as $174,000, all without adding another dime to your original investment.
That’s the magic of compound interest. On the other hand, if you kept $10,000 in cash, in 30 years all you have is $10,000. And after the impact of inflation, the purchasing power of your $10,000 will be much less than it is today.