Whether you’re looking for ways to grow your savings or build your retirement, investing is an essential part of preparing for the future. If you have inherited $50,000 or have worked hard to save it, finding the best way to invest $50k can be a challenge.
Below, I’ll outline the steps you should take to secure your personal finances and list the best ways to invest your $50,000 in 2023.
Steps to Take Before You Invest $50k
While you might be eager to start growing your $50k as soon as possible, you should take a few steps to ensure you are in the best financial situation before investing a large chunk of change.
Build an Emergency Fund
An emergency fund is money reserved as a financial safety net that provides security in the face of a financial setback (such as losing your job or a medical emergency). An emergency fund can help you avoid borrowing money on your long-term investments to pay for unexpected expenses.
Your emergency fund should cover three to six months of your living expenses, providing a cushion for your basic needs. Keep this money somewhere safe and easily accessible, such as a money market or savings account.
As investing comes with a degree of risk, it’s essential to have this cash reserve beforehand. If unexpected expenses come up and you don’t have an emergency fund, you may be forced to sell off your investments prematurely, which could result in a financial loss.
Pay Off Your Debt
According to Experian’s 2021 Consumer Credit Review, the average American is $96,371 in debt and attributes approximately $5,221 to credit card debt. Further, according to the Federal Reserve, the average APR for credit cards is 19.07% (at the time of publishing). However, having credit cards with a 25% or even 30% APR is not uncommon. These numbers should highlight the importance of getting out of debt to improve your financial situation prior to investing.
This is especially true if you have high-interest debt (such as credit card debt). Chances are, the interest rate on your credit card debt is higher than the potential returns you’d earn from investing. By paying off high-interest debt, you can save on interest payments and come out ahead with your investments.
Additionally, having a significant amount of debt can be overwhelming and stressful. Pair that with potential investment risks, and you will only compound your financial stress. Paying off debt will increase the security and stability of your personal finances, and you’ll be able to invest your $50k with a clearer mind.
Determine Your Goals
Before deciding how to invest, you’ll want to consider your financial goals. What would you like to achieve with your investments?
If you are considering a retirement plan, consider investments with the potential for long-term growth (such as stocks or mutual funds). If you have short-term goals, such as a down payment on a home, consider less risky investments with more predictable returns, such as certificates of deposit (CDs) or short-term bonds.
You can determine which type of investment suits you best by identifying your financial goals, and to make it easier, it may be helpful to work with a financial advisor.
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Assess Your Risk Tolerance
Also, it is important to understand that any investment comes with a degree of risk. How comfortable are you with the possibility of losing money in your assets? What amount of money are you okay with possibly losing?
Assessing your risk tolerance will also help you decide on the investments that are most appropriate for you. Here are some common investment strategies in terms of the level of risk involved:
- Conservative investing: This strategy is for relatively low-risk tolerance Conservative investors prioritize preserving their current capital as opposed to gaining high returns. A conservative portfolio is usually comprised of dividend-paying stocks, preferred stocks, high-quality bonds, and other fixed-income assets.
- Moderate investing: A moderate investment strategy involves a balance of both stable and riskier investments. Moderate portfolios usually contain a balance of equities, assets, and lower-risk investments, such as bonds, index funds, and preferred stocks.
- Aggressive investing: This strategy is for the investor willing to risk losing money in pursuit of potentially higher returns. An aggressive portfolio may include a higher percentage of equities, volatile growth stocks, and other riskier investments (such as crypto and IPOs).
When determining your risk tolerance, you’ll want to consider your time horizon (or investment timeline). If your goal is to save for retirement 20 years down the line, you may be willing to take more risks now than if you were saving for something short-term.
Remember that the level of risk you choose does not 100% guarantee returns—there is always a degree of risk involved.
Understand Passive vs. Active Investing
In addition to risk tolerance, time horizon, and financial goals, you’ll also want to consider whether you plan to take an active or passive approach with your investments.
With active investing, you (or a professional investment manager) are actively choosing what to buy and sell to outperform the market. Active investors rely on their own research and analysis to make investment decisions, and therefore it requires a higher level of involvement and risk than an automated investment strategy.
With passive investing, you buy and hold a diversified portfolio of stocks, ETFs, or mutual funds, for an extended period, anticipating that the market will generally trend upward in the long run. As it is more of a set-it-and-forget-it strategy, passive investing is considered an easier approach (but not necessarily more lucrative).
9 Best Ways to Invest $50k
Here are some great ways you can invest $50k today:
- Buy Individual Stocks
- Use Robo-Advisors
- Diversify with ETFs and Mutual Funds
- Make Passive Real Estate Investments
- Invest in a Savings Account or CD
- Fund a Retirement Account
- Open a 529 College Savings Plan
- Consider Alternative Investments
- Speak with a Financial Advisor
1. Buy Individual Stocks
Investing in individual stocks involves buying shares of specific companies through a brokerage account. This type of investment puts all of your money into one company. You’ll want to carefully research the companies that have piqued your interest (Amazon, Shopify, Pinterest, etc.) to learn about their financial health and growth potential.
Multiple brokerage companies and apps are available if you choose to invest in the stock market, including Vanguard, TD Ameritrade, Robinhood, and Fidelity Investments.
This can be a high-risk, but high-reward approach, as the performance of individual stocks can be more volatile than the market as a whole.
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2. Use Robo-Advisors
This is one of the easiest ways to invest $50k. To start with a robo-advisor, you will answer basic questions about yourself, including your age, time horizon, investment goals, and risk tolerance.
Then, the robo-advisor will invest in ETFs and stocks according to your preferences. Some robo-advisors will even rebalance your portfolio, making adjustments based on market conditions and your goals, saving you time and effort.
Robo-advisors are usually managed through an app, making it easy to access your investments from anywhere. For more information, check out my recommendations for the best robo-advisor platforms.
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3. Diversify with ETFs and Mutual Funds
Diversifying your portfolio by investing in a mix of assets, such as Exchange-traded funds (ETFs) and mutual funds, spreads your risk out over multiple investments and potentially reduces the impact of market volatility on your entire portfolio.
ETFs and mutual funds pool an investor’s money together for a basket of stocks, bonds, or other assets. Both provide instant diversification in nearly hundreds of stocks by purchasing just one share.
ETFs are traded just like stocks. Many are index funds (most commonly low-cost), with modest expense ratios. Mutual funds are only traded at the end of market hours, offering multiple securities with varying risks and potential gains. They are the preferred investment for most 401(k) plans.
Both can be actively or passively managed. Often, ETFs tend to be passively managed by a robo-advisor or other asset management platform. Mutual funds tend to be more actively managed by fund managers. It is at the investor’s discretion if they prefer a more “set it and forget it” approach (with fewer fees), or a hands-on approach with a portfolio manager.
Both are excellent options for diversification, broad market exposure, and reduced risk.
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4. Make Passive Real Estate Investments
When it comes to real estate, some choose to buy property and become active property managers. While a rental property can bring in extra monthly cash, it’s not a passive income source. If you want to make money in real estate with little to no effort, consider investing in a Real Estate Investment Trust (REIT).
REITs are companies that own, operate, or finance income-generating real estate. They are a good option for those who want to diversify their portfolio with real estate assets, such as office buildings, apartment complexes, hotels, shopping centers, hospitals, and more. As REITs have to pay at least 90% of their income to shareholders in dividends, these are excellent investments for passive income.
Another other for real estate investing is crowdfunding. Some crowdfunding platforms, such as Fundrise, allow accredited and non-accredited investors to make real estate investments (sometimes with a low minimum investment of $500–$1,000) through eREITs and eFunds (or diversified portfolios of private real estate assets).
Other crowdfunding platforms, such as Crowdstreet, allow investors to invest in specific real estate projects rather than in REITs. In this case, they invest in one particular property or development project.
5. Invest in a Savings Account or CD
A high-yield savings account is an ideal investment option as it offers a higher interest rate than your traditional savings account. Similarly, a certificate of deposit (CD) is an FDIC-insured, high-interest savings account that keeps your money on deposit for a fixed term. CD terms usually run between three months to five years.
Before you open a savings account or CD, do your due diligence in comparing different banks and credit unions in terms of interest rates, fees, minimum deposit, and term limits. With a CD, be sure to choose the term length that works best for you. An early withdrawal of funds usually results in penalties.
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6. Save for Your Retirement
If you’re not planning to touch your investment for a while, you might consider beginning to build a retirement account. One popular and tax-advantaged way to invest your money is through a traditional IRA or Roth IRA account. With either of these, you will not have to pay taxes on your contributions until you withdraw it later in life, making your investment returns tax-free.
When you open an IRA, the funds you contribute are invested in various assets, such as bonds, ETFs, mutual funds, and individual stocks. If you have a self-directed IRA (in which you manage the account), you can invest in alternative options such as cryptocurrencies, precious metals, and real estate.
Many employers offer retirement plans, such as 401(k) or 403(b) plans, which allow employees to contribute a portion of their salary on a pretax basis. Employers may also offer matching contributions, another effective way to increase your retirement savings.
7. Fund a 529 College Savings Plan
A 529 college savings plan is an investment account created to help parents save for their children’s higher education expenses, such as tuition, fees, and room and board. Typically, the funds from a 529 plan can be used at any accredited college or university in the United States or to study abroad (with certain restrictions).
One of the main advantages of a 529 plan is that the money in the account can grow tax-free as long as it is used for qualified education expenses, meaning you don’t pay taxes on any capital gains or dividends earned. In addition, many states offer tax benefits or credits for contributions to a 529 plan, so be sure to look into your state’s laws.
8. Consider Alternative Investments
Alternative investments are financial assets that do not fall into the traditional categories of stocks, bonds, and cash. Some common alternative investments include:
- Hedge funds are private investment vehicles that use various strategies, such as leverage and short selling, to generate returns for investors.
- Private equities refer to the ownership of privately held companies, usually through purchasing shares of a company or owning a controlling stake in the business.
- Cryptocurrencies are the latest and most popular alternative investments, albeit highly volatile. Cryptocurrencies (or crypto) are decentralized virtual currencies, meaning they are not controlled or regulated by a central authority (like a bank or the government). Instead, they operate on a decentralized network of computers that validate transactions and add them to a public ledger, known as a blockchain. The most well-known cryptocurrency is Bitcoin; however, there are hundreds of others to choose from, including Ethereum, Litecoin, and Tether.
- Real estate, as we mentioned earlier, includes owning commercial or residential properties or preferably, investments in REITs.
- Commodities are physical goods, such as oil, gold, precious metals, or wheat, that are traded in financial markets.
- Derivatives get their value from an underlying asset, such as a stock or a currency, such as futures contracts, options, or swaps.
Most alternative investments function outside the stock market, so the volatility of stocks and bonds has no impact on your investment.
9. Speak with a Financial Advisor
Before you invest $50k, it is generally a good idea to connect with a financial advisor, mainly if you are new to investing and unfamiliar with the risks involved. A financial advisor can help you navigate your financial goals, risk tolerance, and time horizon, and provide investment recommendations that align with your financial plan.
In addition, a financial advisor will help you develop a long-term investment strategy and provide ongoing support and guidance if your financial situation should change. They will help keep you on track and ensure you progress toward your goals.
Financial advisors are not always necessary, so it’s ultimately up to you to decide whether you want to work with one. If you choose to do so, carefully research and compare several to find one that suits your needs best.
Frequently Asked Questions
How much interest can you earn on $50,000 in one year?
It depends on how your invest your $50k. According to the FDIC, the national average APY on savings accounts is just 0.13%, so interest on $50,000 would come out to around $65 annually.
If you invest $50k in a money market, with an average interest of 2%, you would earn about $1,000 in one year. If you’re willing to let your money sit for a bit, a one-year average interest for a CD is 3%, resulting in $1,500 interest in one year.
What is the safest way to invest $50k?
High-yield savings accounts are typically considered a safe investment, as they are FDIC-insured, meaning that whatever money you deposit is insured by the government up to $250,000. If the financial institution holding your high-yield savings account fails, the FDIC will compensate you for your losses (up to the insured amount).
It is an ideal choice if you want a relatively safe place to keep your money while still earning interest. However, if you wish to have a higher annual return on your investment, consider other options such as stocks, bonds, or mutual funds.
What investments should I avoid?
While there are several examples of “bad” investments, some depend on your risk tolerance level. Penny stocks, crypto, junk bonds, and other high-risk investments can be considered “bad” investments, but if you are willing to take the risk, it could pay off in the end.
We advise that you stay away from over-hyped or “pumped” investments, as that can be a sign that particular investment isn’t as great as it seems. Shareholders are likely trying to get the price up (by getting you to buy it), so they can cash out in the hopes of breaking even. You should also be wary of investments that charge high fees, as that can eat into your returns.
Before you invest your money anywhere, do your due diligence by thoroughly researching your options and reading the fine print.
Should I diversify my investments?
Diversification spreads your investments across different asset classes, industries, and other categories to minimize risk and potentially increase capital gains. Diversifying your portfolio is considered a key aspect of sound investing, as it helps protect you from potentially significant losses if one investment performs poorly.
Keep in mind that it is not a 100% guaranteed solution to prevent losses—there is always risk any time you invest.
Is Investing $50,000 a Good Idea for You?
If you are fortunate enough to be able to invest $50k, you have multiple options to consider. Be realistic about your goals, time horizon, and risk tolerance level, as those factors will help you determine the best investments for you.
Also, ensure that you’ve taken the proper steps to get yourself in the best financial situation possible before you invest—pay down your high-interest debts and build your emergency fund.
If you’re new to investing and want to learn more, I put together a step-by-step guide to walk you through your first investments. It can also be helpful to speak to a financial advisor, as well as family and friends to learn about their investing experiences.
J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (“J.P. Morgan”), a registered broker dealer and investment adviser, member FINRA and SIPC. Millennial Money is a publisher of J.P. Morgan, (“Publisher”). The Publisher will receive compensation from J.P. Morgan if you provide contact details to speak with a J.P. Morgan representative. Compensation paid to the Publisher will be up to $500 per completed contact form. Compensation provides an incentive for the Publisher to endorse J.P. Morgan and therefore information, opinions, or referrals are subject to bias. J.P. Morgan and the Publisher are not under common ownership or otherwise related entities, and each are responsible for their own obligations. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.