How to Invest $10,000 – Forbes Advisor

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Burned a hole in your pocket recently with $10,000? While $10,000 may not seem like a life-changing sum of money, if properly invested over time, it could become a very tidy nest egg.

Whether it’s an unexpected windfall, an inheritance, or a lottery ticket, let’s look at the best ways to invest $10,000.

Open an IRA

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 first choice 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 company pension plan. The best IRA accounts allow you to choose from a very wide range of asset classes, giving you extra flexibility.

Another strategy to consider is a Roth IRA. 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 before you’ve even reached retirement age.

In 2022, you can put up to $6,000 a year into an IRA, or $7,000 a year if you’re 50 or older. Maximizing your contributions can help you meet your retirement goals — and potentially leave you 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 objectives. Things like investing in a specific market sector, generating cash flow, tracking the price of a commodity like gold, or mimicking the performance of a market index like the S&P 500.

Regular investors can buy shares in any number of funds. When you invest, each fund’s management team does the hard work of keeping the portfolio on track. In return for this convenience, the funds charge an annual expense ratio, expressed as a percentage of your total investment.

You can buy mutual funds and ETFs through a brokerage account or an IRA. Vanguard is widely recognized as the leading provider of both types of funds. Check out our listings of the top Vanguard ETFs and top Vanguard Mutual Funds for more insight.

Build 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 educate themselves and do some research about publicly traded companies, 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 like a particular stock or company, you should never buy a single $10,000 stock.

Instead, build a stock portfolio with a mix of different individual stocks, preferably ones that balance their risks. For example, if you invest in an oil company that should do well when oil prices rise, you also buy an airline stock that should do well when oil prices fall.

Invest in bonds

If you’re looking to generate income, bonds could be a useful $10,000 investment.

When you buy bonds, you are lending money to a company or government. You agree to hold the bond for a period of time and at the end of that period the bond issuer will return your money to you. In the meantime, the issuer will pay you regular interest at a set rate.

Remember that losing money when investing in bonds is not impossible. If you wish to sell your bond before maturity you could find a buyer in the secondary market, but depending on market conditions you may have to accept a lower price than you paid.

In addition, if the bond issuer ran into financial difficulties, it could miss payments or even default on your investment.

Bonds with higher interest rates — so-called junk bonds — tend to be riskier. As with any investment, there is always a trade-off between greater risk and greater reward. You can buy bonds through most brokerage platforms that offer stocks.

Buy real estate with REITs

In today’s hot real estate market, $10,000 isn’t going to get you very far. But there is more than one way to invest in real estate.

For example, try Real Estate Investment Trusts (REITs), which are a type of publicly traded company that can give you access to many different types of real estate.

Most REITs focus on one type of property — such as commercial real estate or residential real estate — though some own a variety of different property types. To qualify as a REIT, companies must return at least 90% of their taxable income to shareholders, making REITs a good way to generate income as well.

Similar to regular stocks, REITs are very liquid. This makes it easy to cash out your investment and move your money elsewhere. Contrast this with owning physical real estate, where selling is a long and expensive process.

Prepare for healthcare costs with an HSA

A Health Savings Account (HSA) allows you to save and invest for future health care costs. Remember, you can only open and fund an HSA if you have a high-deductible health plan.

You can contribute up to $3,650 to an HSA in 2022. In return, you receive three valuable tax benefits.

First, you can deduct your contributions from income tax. Once money is in your account, you can invest it in various mutual funds and exchange-traded funds (ETFs), depending on the HSA provider.

Second, you defer income taxes on your winnings while they remain in the account.

Third, if you’re spending money on health care expenses, you’re withdrawing money from an HSA tax-free. That’s right, you never owe capital gains taxes when using withdrawals for qualifying medical expenses.

If you don’t need the money for health care, you can use an HSA even if you’re 65 years old. You owe income tax on the withdrawals, but there are no other penalties.

Considering crypto? Be careful

Until recently, cryptocurrency was the hot new investment that everyone wanted a piece of. But if you’ve been following the news, you probably already know that crypto has fallen out of favor – thanks in part to massive market volatility.

However, even before the recent market events, crypto had seen spectacular gains and stomach-churning losses. Given the uncertainty and high risk associated with crypto, it would probably be best to look elsewhere than cryptocurrency for places to invest $10,000.

However, if you are determined to invest in Bitcoin or Ethereum, make sure it is money you can afford to lose. Also, consider only making crypto a very small portion of your overall portfolio, no more than 5%. For more crypto investment ideas, check out our list of top cryptocurrencies.

Concentrate on the long term

Investing is a long game. No matter what assets you buy with your nest egg, your investment performance will see both gains and losses over the years. And that’s to be expected – your job is to focus on the future.

If you can 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 penny 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 you will only have $10,000. And after the effects of inflation, the purchasing power of your $10,000 will be much less than it is today.

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