Selling a house or receiving an inheritance are two common instances when you could suddenly find yourself with $50k cash available to invest.
Whether you recently received a big payday or you saved up the money over time, having $50k to invest gives you a lot of options. But a multiplicity of options can be both a blessing and a curse. The more investments that are accessible to you, the harder it can be to see what sets each one apart.
In this guide, we’ll cut through the clutter by comparing eight different strategies for investing $50k. For each strategy, well explain its pros and cons and how to get started. So keep reading to learn everything you need to know about how to invest $50k.
The Importance of Diversifying Your Investments
Diversification is the process of investing in multiple assets or asset types to reduce risk and volatility. As you think about investing $50k, you’ll want to consider diversifying both within and across asset classes.
Diversifying within an asset class could mean buying dozens or hundreds of stocks from a variety of stock sectors rather than just one or two stocks from the same industry. If you’re invested in just one stock and it tanks, then your portfolio would also tank. But if that stock is just one of 25, 50, or 100+ stocks you own, you may still actually earn a positive return overall.
You can begin to diversify across asset classes by going beyond domestic stocks to invest in bonds and international stocks. But, for even broader diversification, you may want to consider branching out into real estate or alternative assets like cryptocurrency, collectibles or private equity.
What to Do Before You Begin Investing
We think it’s awesome that you’re looking to invest your $50k rather than spend it. If you just earned the average annualized return of the S&P 500 (about 10%), you could double your money every seven years!
That means in seven years, you could have a cool $100k in your investing portfolio. And in less than 15 years, you could have $200k.
But while you may be eager to start the compounding process as soon as possible, that doesn’t necessarily mean you should rush into investing your $50k today. Below are three steps you’ll want to complete first.
Pay Off High-Interest Debt
According to the Federal Reserve, the average credit card interest rate is over 14.65%. It’s also not uncommon for credit cards to charge an APR of 20% or higher.
These numbers illustrate why paying off credit card debt should nearly always take priority over investing. By doing so, you’ll get a higher guaranteed return on your money than what most investors ever hope to earn on their investments.
Other debt types that often come with high interest rates include personal loans, auto loans, and payday loans. If you have these or any other forms of debt with an interest rate of 8% or more, Investor.gov recommends you pay them off as quickly as you can.
What about mortgage or student loan debt? Should you pay these loans off early as well? Well, like many questions in personal finance, it depends. It depends on things like the interest rate on the loans, your risk tolerance, and more. To help you decide, check out the guides linked below.
Build Your Emergency Fund
Of the many personal finance lessons that the COVID-19 pandemic taught us, one of the most poignant was that emergency funds are critical. We truly never know when an unforeseen event could cause our incomes to drop or our jobs to be eliminated completely.
So how much money should you have saved in your emergency fund? Most experts say you should aim to set aside at least 3 to 6 months’ worth of expenses. But if you’re self-employed or retired, you may want to have even more emergency savings.
But isn’t investing your money the same as building an emergency fund? No. Investing money that you have earmarked for emergencies can be dangerous for two reasons.
First, if an emergency occurs while your investments are down, you may have to sell them at a loss. Second, pulling your investments out early can cause you to incur fees, penalties, or taxes. This is especially true in the case of retirement account investments.
Typically, a high-yield deposit account is one of the best places to stash an emergency fund. For example, Chime offers a no-monthly-fee account that pays a high annual percentage yield (APY) and comes with automatic savings tools. Chime account holders can also receive their direct deposits up to two days early. Read our full Chime review for more details.
Chime SpotMe® Disclosure - Eligibility requirements and overdraft limits apply.
Chime Disclosure - Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC.
1Chime cannot guarantee when files are sent by the IRS and funds can be made available.
^Early access to direct deposit funds depends on payer
Chime APY Disclosure - 1The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of November 1, 2021. No minimum balance required. Must have $0.01 in savings to earn interest. 2The average national savings account interest rate of 0.06% is determined by FDIC as of November 1, 2021 based on a simple average of rates paid (uses annual percentage yield) by all insured depository institutions and branches for which data are available. Visit https://www.fdic.gov/regulations/resources/rates/ to learn more.
Determine Your Investor Profile and Risk Tolerance
Before you start investing, you need to find out what type of investor you are. For starters, you’ll want to consider your risk tolerance. Here are three common risk tolerance categories:
- Conservative: These investors have very little tolerance for risk and their top priority is capital preservation. Conservative portfolios are often heavily invested in bonds or other fixed-income assets and have little exposure to equities.
- Moderate: These investors are willing to tolerate some short-term risk in exchange for higher potential long-term returns. Moderate portfolios are often well-balanced between equities and assets with lower volatility such as bonds.
- Aggressive: These investors are willing to accept maximum risk in order to achieve maximum potential returns. Aggressive portfolios are often heavily invested in equities and may focus specifically on growth stocks with above-average volatility.
To determine your risk tolerance, consider your time horizon. Someone who plans to retire in 33 years may be more willing to ride out periodic market corrections than someone whos looking to retire in 3 years.
You’ll also want to consider your portfolio size. Typically, the larger the portfolio, the more risk you can take on. For example, if you lost 10% on a $5 million retirement portfolio, youll still have $4.5 million left. But losing 10% on a $500,000 portfolio (bringing it down to $450,000) could lead some retirees to legitimately worry about outliving their savings.
Active Investing vs. Passive Investing
Risk tolerance is the only part of your investor profile that you’ll want to determine before you start investing. You’ll also want to consider whether you’ll take an active or passive investing approach.
With active investing, you (or your fund manager or financial advisor) actively choose each of your investments. Passive investing, meanwhile, usually involves buy-and-hold investing in benchmark indexes through ETFs or mutual funds.
If you’re willing to put in the time to research investments or to pay someone else to do it for you, active investing could be a great choice. But if you’re looking for a set-it-and-forget-it strategy, passive investing on your own or with a robo-advisor may be the way to go.
Overview: How to Invest $50K
|Investment Type||Best For|
|Stocks||Full portfolio control|
|ETFs and mutual funds||Simple diversification|
|Real estate||Passive income|
|Alternatives||Hedging against volatility|
|Retirement account||Long-term investing|
|529 college savings plan||Saving for education costs|
|Financial advisor||Personalized, human advice|
1. Build a DIY Portfolio of Individual Stocks
If you want complete control over your portfolio investments, buying individual stocks could be a good option. In order to build a diverse portfolio, you’ll probably want to buy at least 20 different stocks. But, thankfully, that should be totally possible with $50k available to invest.
To achieve success with investing in single stocks, you’ll need to have a strategy for how you’ll screen them. Value investing and growth investing are two of the most popular stock strategies. Other investors choose an income strategy that focuses on dividend-paying stocks.
To start investing in stocks, you’ll first want to open an account with a low-cost brokerage firm. TD Ameritrade is a great option as it offers commission-free stock trades and provides state-of-the-art research tools through its thinkorswim platform. Read our TD Ameritrade review.
Ally Invest is another strong stock trading platform. In addition to free trades, it offers Maxit Tax Manager which helps investors improve the after-tax results of their investments. See our review of Ally Invest.
Looking for a mobile-friendly stock investing platform? You might want to consider E*TRADE. The discount broker offers two separate mobile apps. One is geared towards beginners while the other packs some advanced tools for active traders. Stock trades are free with E*TRADE and clients receive 24/7 customer support. Check out our E*TRADE review.
2. Instantly Diversify Using ETFs and Mutual Funds
Not interested in putting in the time and work that it requires to find and invest in dozens of individual stocks? Many non-professional investors feel the same way which is why ETFs and mutual funds are so popular.
You do lose a little control when you invest in funds as you don’t personally get to choose each of their underlying securities. But, in exchange, your hassle factor goes way down. And many investors are perfectly satisfied with that tradeoff.
ETFs and mutual funds are baskets of stocks, bonds or other assets that pool investor funds together. With either type of investment, buying just one share can provide instant diversification in dozens or hundreds of securities. Both offer index-tracking or actively managed options, with index versions usually boasting the lowest expense ratios.
While ETFs and mutual funds are very similar, only ETFs can be bought or sold during regular market hours like stocks. They also don’t set minimum investment requirements like many mutual funds do. These advantages have caused ETFs to quickly rise in popularity over the past decade.
If you’re looking to invest in low-cost mutual funds and index funds, Vanguard or Fidelity are two great options. But if you’d prefer to invest in ETFs, you may want to consider Public. In addition to offering free trades, Public allows investors to buy fractional shares of ETFs. Clients also get access to a unique stock market social network. Read our review of Public.
3. Use a Robo-Advisor Service
While investing in ETFs and mutual funds is less burdensome than stock investing, some ongoing maintenance is still required. For one, you’ll need to periodically check your asset allocation and rebalance it whenever it moves too far away from your target. You’ll also need to adjust your target asset allocation as you age and get closer to retirement.
In the past, many investors would pay financial advisors to handle these kinds of portfolio management tasks. But, today, many robo-advisors can accomplish these same tasks automatically and for low advisory fees.
Betterment, for example, offers low-cost custom ETF portfolios and automatically adjusts your asset allocation as you near your goals due date. Automated rebalancing and tax-loss harvesting are also included. The advisory fee for Betterment’s Digital plan is just 0.25%. Or clients can pay a slightly higher 0.40% annual fee to get unlimited access to CFPs. Read our full Betterment review.
Wealthfront is another top-notch robo-advisor platform. All investors pay an annual advisory fee of 0.25%, regardless of account size. In addition to tax-loss harvesting and rebalancing, Wealthfront offers a wealth of free financial planning advice inside its app. Learn more in our full review of Wealthfront.
Want the benefit of a robo-advisor without paying any fees? If so, you need to check out M1. It offers more than 6,000 stocks and funds and you can add up to 100 slices (fractional shares) per custom pie. It also offers nearly 100 pre-built Expert Pies. Best of all, there’s no advisory fee whatsoever. Check out our full M1 review.
4. Look for Passive Real Estate Investments
While becoming a landlord can be a great way to generate cash flow from real estate, it’s far from passive income. Required tasks often include screening tenants, collecting payments, handling repairs, and more.
If you’re looking to earn income from real estate without having to deal with the day-to-day hassle of managing rental properties, you may want to consider investing in a real estate fund. REITs, for example, are required to distribute at least 90% of their taxable income every year in the form of shareholder dividend payments, making them great passive income investments.
Fundrise, Realty Mogul, and Streitwise are three popular crowdfunding sites that make it easy to invest in REITs. Each offer low investment minimums, charge reasonable management fees, and are available to both accredited and non-accredited investors.
If you do happen to be an accredited investor, you may want to consider Origin Investments. Unlike REITs, the real estate funds at Origin Investments operate under an LLC structure which enables all the tax benefits to be passed on to its investors. Origins principals have also significantly co-invested in their platforms deals ($56 million to date). Read our Origin Investments review.
5. Consider Alternative Investments
Alternatives is a broad term that can include any investment that doesn’t fall into the stocks, bonds, or cash categories. For this reason, real estate is technically often considered an alternative investment. Other common alternatives include:
- Private equity
The performance of alternative investments are often uncorrelated to the stock market. For this reason, some investors choose to invest a portion of their portfolios in alternatives as a means of hedging against stock market volatility.
Over the past few years, cryptocurrency has been one of the hottest alternative investments. While there are many cryptocurrency exchanges, most do charge trade fees. However, Robinhood customers can buy and sell Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies for free. See our Robinhood review.
Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and Doughroller, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. Doughroller is not a member of FINRA or SIPC.
Coinbase is among the easiest places to buy and sell cryptocurrency.
It has 56+ million users spread across 100+ countries. Adding to this, it manages quarterly trading volume in excess of $335 billion. With data for more than 5k cryptocurrencies, you have access to everything you need to invest with confidence. Ease of use allows you to invest at any time, but don’t get ahead of yourself. Keep your cryptocurrency investments at 10 percent or less of your portfolio.
If you’re looking to invest in art, you should check out Masterworks. On the Masterworks platform, you can buy and sell shares of multimillion-dollar paintings. If you decide to hold onto your shares until the painting sells, you’ll receive proceeds from the sale. Masterworks charges a 1.5% annual fee in addition to receiving a 20% cut of artwork profits. Read our review of Masterworks. SEE IMPORTANT INFORMATION HERE.
Learn More: How To Invest in Art?
6. Max Out Your Retirement Savings
If you’re not planning to withdraw from your investments until retirement, you need to be maxing out your tax-advantaged retirement accounts. By failing to do so, tax drag could reduce the overall performance of your $50k portfolio by tens of thousands of dollars.
If you don’t have access to a 401(k) plan, you can open up an individual IRA (traditional or Roth) with most discount brokers and robo-advisors and contribute up to $6,000 per year. If you’re a freelancer or own your own business, you may be able to shield even more of your $50k from taxes by opening a self-employed retirement plan such as a Solo 401(k) SEP IRA, or SIMPLE IRA.
If you do have access to an employer-sponsored 401(k) plan, Blooom can help you optimize it. Blooom’s robo-advising technology makes recommendations that are customized specifically to you. The service can even place trades on your behalf. Blooom works for both 401(k)s and IRAs and plans range from $45 to $120 per year. See our Blooom review.
7. Open a 529 College Savings Plan
Do you still have some of your $50k left over after maxing out your retirement accounts? If so, and if you happen to be a parent, it might be time to open a 529 college savings plan account.
There are several ways that you can benefit from investing in a 529 plan. First, it offers tax-free growth and withdrawals. Second, many states offer tax credits or deductions on 529 plan contributions.
Third, the funds can be used on any qualified education expenses (which includes K-12 expenses). And, fourth, account owners can change the beneficiary to another qualified family member at any time. Check out our full guide to 529 college savings plans to see a list of the best plans by state.
8. Hire a Financial Advisor
Through the use of technology and automation, robo-advisors are able to handle many repetitive wealth management tasks. But if you’re looking for investing advice that’s tailored specifically to you, you may want to sit down with a human financial advisor instead.
Financial advisors can be a great choice for investors who have a high net worth or complicated financial lives. It can also be reassuring to check in with an advisor during big life changes like getting married or becoming a parent.
If you’d prefer to meet in person with a financial advisor, Paladin Registry can help you find one near you. Its free match service connects investors to vetted financial advisors with verified credentials. Simply tell Paladin your requirements and receive an email the same or next business day with advisors that match your criteria. Read our full review of Paladin registry.
There are many ways to invest $50k. The right investments for you will depend on a variety of factors such as your age, risk tolerance, and financial goals. For more tips on how to develop your investing plan, check out our Complete Beginners Guide to Investing.