You’ve socked away your first $10,000 — congratulations! Meeting a savings milestone is a huge accomplishment and can solidly set you up for the next leg of your money journey. The next step for many savers is to figure out how to put that hard-earned cash to use. In other words, how to start making that money grow and earn for you.
That’s why we created this straightforward guide full of investment ideas that can help you figure out how to invest money in the best way to achieve your personal finance goals. We’ll walk you through nine different money options, explain how they’re used, and offer tips to help you figure out which investment strategies are right for you and your $10,000.
First: what are your goals and how do you handle risk?
Before you can figure out where to invest your $10,000, you’ll want to take some time to think about who you are as an investor, where you want to be in the future, and how investing money can help you with your short- and long-term financial goals.
Take some time now, before you make any money moves, to think about where you ultimately want to be. Do you aim to be debt-free? Start a family? Save up a down payment for a home? Retire early? Different life goals often call for different financial strategies.
Then consider your risk tolerance. This can help you decide which investment opportunities may best suit your disposition. High-risk investments are often accompanied by greater potential for a high rate of return, but they will also have a greater likelihood of loss. Some investors are better able to stomach the market’s ups and downs. Others prefer to find ways to smooth out the ride.
So take some time to work through these questions. What kind of investor are you? What are your short-term goals? And your long-term goals? The answers to these questions can help you figure out which of the following investment options may be best for you.
How to invest $10K: 9 smart ways to use your money
Now that you’ve done some soul searching, it’s time to dig in and start exploring investment opportunities. Check out these nine options so you can decide which investment strategies can help you meet your goals while also meeting your risk tolerance.
1. Put money in a high-yield savings account
It’s always a good idea to have an emergency fund set aside. You never know when you’ll have to weather an emergency car repair, pay to remove a downed tree after a storm, or make good on bills after an unexpected job loss.
If you’re building a first-time cash cushion right now, aim to sock away somewhere between three and 12 months’ worth of living expenses. The lower end is for those with very secure jobs, in which the risk of layoff is extremely low. The higher end can help ease worry for risk-averse workers, those who work for themselves, or people with unstable income situations.
Although an emergency savings account is meant to be held somewhere secure, it never hurts to earn a percentage point or two of interest on your parked cash. With that in mind, you’ll want to pick from among the best savings accounts.
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2. Pay off high-interest debt
Invest in your future by tackling the high-interest credit card debt you have right now. That plastic in your pocket is one of the most expensive ways to borrow money. The average American carries three cards, each with a typical balance of about $6,600 and an annual percentage rate (APR) of 15.05%. Pay just the minimum amount due on those cards and you’re looking at a 37-year repayment term and more than $32,000 in interest payments alone.
Instead, consider paying off that high-interest debt. Once you do, you can start to funnel those former payments into income-producing investments like stocks, index funds, or real estate (more on this below). Instead of paying interest out to your lender, you’ll essentially flip the script, giving yourself the power to start realizing investment-earning rewards for yourself.
3. Max out your individual retirement account (IRA)
There are two types of IRAs, the traditional and Roth. The traditional IRA allows for a tax deduction, which effectively decreases your taxable income for the year the contribution is made. The Roth IRA, meanwhile, is funded with after-tax dollars. Its main advantage is that the money in it grows tax-free. That means you won’t owe any income tax on Roth distributions when you retire and start withdrawing money.
The tax benefits of each are limited to those who earn below a certain threshold but the Roth IRA is generally a more flexible account. The Roth allows for tax- and penalty-free withdrawals before retirement under certain circumstances, such as to buy a first home or pay for qualified higher education costs.
The IRA annual contribution limit is $6,000 if you’re under age 50 or $7,000 if you’re age 50 or above. There are income limits too. So if you haven’t put money aside into your IRA yet this year, it might be a smart way to use part of your $10,000.
4. Fund a Health Savings Account (HSA)
An HSA is a fast and easy way to reduce taxable income while also saving for those often unavoidable health care costs that can crop up when you least expect.
Besides allowing you to pre-plan to pay future health care costs, the HSA has an attractive triple tax advantage, if used for qualifying expenses:
- HSA contributions are made pre-tax if made through your employer, or they can be tax-deductible if made on your own
- Any earnings accumulate tax-free within the account
- There is no tax due on withdrawals made for eligible health care-related expenses
To participate, you’ll need to be enrolled in an HSA-eligible, high-deductible health insurance plan. This typically includes plans with a $1,400 minimum annual deductible for individuals and $2,800 for families. HSA maximum contribution limits currently top out at $3,550 for self-only plans and $7,100 for family coverage.
5. Save for education costs with a 529 account
The average student loan debt tops $30,000 for recent college grads. That staggering number often drives home the need for many parents to start saving as soon as they can.
Parents — and grandparents, family friends, or other loved ones — can sock away up to $15,000 per year, per child, in the tax-advantaged college savings account known as a 529. Most of us won’t be able to come anywhere near that number, but even if you just sock away a few hundred bucks per month, you could wind up with more than $80,000 by the time your child moves into a freshman dorm.
529 plans offer federal tax-free growth and tax-free withdrawals for qualified education expenses. Some states may also offer a full or partial tax credit or deduction to residents who contribute to their state’s plan or, sometimes, to any plan.
It can be tricky to figure out which 529 plan is right for you but there are handy online resources available, or you can sit down and chat with a financial planner or college planning professional.
6. Open a taxable investment account
Once you’ve filled your tax-advantaged investment buckets — generally your 401(k) and IRA — you can continue to boost your investment savings by opening a taxable account through your investment advisor, a brokerage firm, or an investing app like Robinhood or Stash.
Unlike your retirement plan, you’ll have to pony up to Uncle Sam when you sell a taxable investment at a profit, but there are some upsides to taxable accounts. You’ll have access to myriad investment types, including stocks, bonds, exchange-traded funds (ETFs), mutual funds, and even cryptocurrency, depending on the service or brokerage account you use.
Many investment apps and robo-advisors like M1 Finance and Betterment have very low minimum investments required and even allow you to buy just a slice of a stock, or a fractional share. This option can open up a new investable universe to a cash-strapped go-getter with a taste for stocks that trade at a higher price per share (think Apple, Tesla, Amazon, and other big-name companies).
7. Build a CD ladder
A certificate of deposit, or CD, is a type of savings account that restricts access to your funds for a specific period of time (the term). In exchange, it offers a higher interest rate than what you’d be offered for a regular savings account. Buying a CD is a one-and-done transaction — you can’t add or withdraw money without triggering a financial penalty.
To build a CD ladder, you buy a series of CDs with sequential maturity dates (in two, four, and six years, for example). This strategy will give you access to a portion of your money whenever a CD matures. Meanwhile, the rest of your funds can keep earning at the higher interest rates offered by your remaining CDs.
Although CDs are among the safest of investments, the interest rates offered often pale in comparison to the potential earnings an investor could realize in the stock market. But buying multiple CDs at varying maturity dates can be a smart money move for risk-averse investors who want to build a calm island of stability amid choppy market waves.
8. Start buying index funds
Ready to start investing but don’t want to take on the risks associated with individual stocks and bonds? Index funds give you a quick and easy way to get into a particular part of the investment universe.
An index fund essentially tracks the movements of a particular investment benchmark, or index. For example, the 500 largest stocks in the U.S., companies from emerging market economies, or investment-grade corporate bonds. As stocks, bonds, or other securities are added or removed from an index, its corresponding fund will automatically buy or sell those securities.
Because index fund portfolios tend to be somewhat large, they’re also associated with greater diversification and less risk than individual stocks and bonds. They are an investment, though, and still subject to the market’s ups and downs. But index funds can be one of the fastest, easiest ways to put $10,000 to work in the broader investment market.
9. Look into real estate investment opportunities
Getting involved in real estate can help generate a substantial income stream while also creating risk-reducing diversification. That’s because tenants typically keep paying rent, even when the stock market hits a slump. In addition, real estate and the stock market don’t typically beat to the same drum. When one market hits a slump, it’s likely the other is just hitting its stride. That often inverse relationship makes real estate an excellent complement to stock market securities.
Even if you don’t want to be a landlord or can’t afford to buy an entire building, there are ways you can get started by learning how to invest in real estate. You can tap into this market sector by buying into real estate investment trusts (REITs). REITs are companies that may own, manage, or finance a pool of income-producing real estate properties.
REITs offer a hands-off investor many of the same benefits of buying rental property first-hand, but without the landlord responsibilities. Plus, they’re typically much easier to buy into than investment properties. You can invest in a publicly-traded REIT through a broker, and there are also REIT-specific mutual funds and ETFs available.
There are also crowdfunded real estate investment options thanks to modern technology. Companies like Fundrise and Crowdstreet give investors the power to pool their money with other investors to buy into private, commercial, or residential deals. Depending on the platform you choose to invest through, you may be able to invest in individual deals, funds, or portfolios.
Whether you want to save for retirement, build a college fund, or create an ultra-safe CD ladder, there is an investment option that can put your $10,000 to work for you. A do-it-yourselfer can explore these options through a robo-advisor or an investment app. Or reach out to a financial advisor if you’d rather work with a real live human.
Either way, it’s always a smart money move to identify your goals and gauge your tolerance for risk before moving into an investment opportunity.