The chief purpose of an investment, whether big or small, is to make your money grow – Gordon Gekko knows all about that! Its never too late to start whether you have $10,000 to invest or less, there are a number of great online platforms and other financial products and investments for new investors. Or investors that have a small amount but want to invest. Whether you have a high risk tolerance or are looking for an investment with steady returns, if you are young or old or working or retired – there are products out there for you to invest in!
Here are the best ways to invest $10,000.
Put $10,000 into Retirement Accounts
You must have heard financial advisors say that retirement planning needs to start early. There is indeed no other better way to start your retirement planning than with $10,000. You should consider investing in a 401(k) account, especially if your employer matches your contributions. This can be a great way to start investing.
401(k) is a good investment option even if your company is not matching your contributions because it lowers your taxable income while giving your retirement savings a boost. Once you have maxed out your 401(k) contributions, you can look at other investment options.
Open a Roth IRA account that lets you withdraw money tax free after retirement. You can contribute $5,500 annually in a Roth IRA post tax. You can contribute the same amount if you are self-employed. You can also start a Simplified Employee Pension IRA or SEP IRA.
Starting Small with Mutual Funds
Mutual fund investments are subject to market risks and should only be started once you have cleared your debt and have set up a retirement account. Mutual funds offer diversification among stocks, bonds and other short term investments. You need to choose a brokerage which can help you achieve your financial goals.
You can also consider investing $10,000 directly in index funds, such as S&P 500. These are long term investments and best for retirement.
These offer the same diversification as mutual funds with returns closely mimicking those of the current market trends. Further, Index funds do not require active management and have a very small fee associated.
Investing in Stocks
There are a number of online brokerage accounts that can make the whole process of investing in stocks easy, convenient, cost effective and simplified. Before you begin investing, set some limits for yourself. A rookie mistake is to put your entire money in the equity stock market at once – certainly if you never read a Peter Lynch book and don’t understand what a P/E or a PEG ratio is.
Don’t ever invest with Charles Schwab either since their website platform makes even terrible companies look like a wise investment. They make their money off of trades so they don’t care if that trade makes any sense or not.
To continue, stock markets are volatile and can swing both ways. Never put all your savings or your ready cash of $10,000 on one stock. Diversification of risk is the key to successful investment. You need to set a threshold amount that you can lose before quitting the stock market. Stocks are risky but they are liquid and are a good way to get into investing. If you are looking for a more passive investment but still want access to the market, many first time investors like ETF’s or exchange traded funds.
You need to be prepared as well that you might not be able to recover all your losses. Stocks can plummet one day, only to rise to new heights the second. Never be hasty and emotional to withdraw all your savings when you see your stocks falling.
Bonds for first time investors
Bonds are just like stocks, except you are essentially buying debt. They are less risky as compared to stocks and often predictable. You can invest a portion of your $10,000 in corporate bonds, municipal bonds and treasury bonds or T-bonds.
Only T-bonds can be bought directly from the government without a broker. You can predict your earnings based on the bond rate and maturity period. However, you can lose money in bonds as well if you sell it before maturity. Bonds like stocks can be risky, but are popular options when investing with a small amount of initial capital and you just want to get started
Health Savings Account (HSA)
This is a trendy and savvy way to park your $10,000 safely. The investment grows tax-free until you are ready to withdraw it for a healthcare expense. HSA are available to people with high deductible health plans. These come with a wide range of tax benefits. For instance, the money you put in a HSA is deductible on federal taxes.
The best part about HSA is the interest you get as well as the tax benefits. You can also withdraw the entire amount without penalty once you hit 65. You might still want to save the money for potential healthcare emergencies. However, you can use a portion of the funds towards retirement expenses.
Real Estate investing for under $5,000
Real estate is always a lucrative option to invest in, although, dealing with tenants or having the interiors painted every year might not be everyone’s cup of tea. However its never to late to realize your dream of becoming a high flying property investor. Be it in commercial real estate, residential real estate, multifamily or some other type.
You might also not get much of a physical property with $10,000. However, you can always invest in real estate investment trusts (REITs) or real estate themed ETFs (exchange traded funds).
There are a number of benefits in dealing with these real estate investment options. They are highly liquid and easy to trade in the financial markets. These are also diversified with a number of real estate options combined together under one fund. There are some great online real estate investment platforms that you might want to consider
Peer-to-Peer Lending how to get involved
These are a new way of investing and are ideal for people who do not want to deal with financial institutions. You can join any one of the multiple online P2P lending platforms and become a lender yourself. This investment option will give you a high rate of return with a low risk in comparison.
You may have to pay an origination fee, annual fee and closing fee to the platform providers as an investor. However, you should not look for the cheapest options.
Online platforms are essentially the intermediaries between you and the borrower. Look for a platform where you can get help in litigation if a borrower defaults. Always make sure to diversify your investment among multiple borrowers to minimize your risk.
Consider investing in cash via a High Yield Savings Account
There are many people who are averse to risk taking. You can be completely safe by investing your money in a high interest savings account. You can also consider opening a high yielding CD. You need to shop around for various rates offered by banks. Online banks tend to offer better rates as compared to traditional banks.
The first thing you should do with ready cash is to pay off high interest debt. We wrote before about ways to eliminate credit cards from your life.
It is judicious that you always pay off your debt before thinking of investing. Also, make sure you have an emergency fund set aside. It is best to do a risk analysis between the various investment options and come up with an investment strategy.
You can also invest in a new small business if you have a compelling business idea and a viable sales model.
You could also invest in upgrading your skills or consider going back to school and finishing your college education. In an inflationary economy, $10,000 might not seem like much. However, it can definitely produce solid returns with the right investment strategy.