How to Invest $10K

Having $10K to invest all at once might seem daunting. If you are just beginning to start investing, then you might be feeling a little overwhelmed. You have lots of options including saving for retirement or investing in yourself.

Think about what is going to improve your future. As long as you are thinking long term, I’m confident that you’ll be happy with your investment.

Before You Begin Investing

If you have $10,000 to invest, the first thing to look at is your foundation. Your financial foundation is your emergency fund and your debt levels. Before you begin investing, you’ll want to make sure you are well protected with an emergency fund and that you are comfortable with your debt levels.

Rather than invest, it makes more sense to pay off high-interest debt and loans whose payments are causing cash flow issues.

Emergency Fund

Traditional wisdom says you should have six months of living expenses saved for emergencies. If you don’t have this yet, a high-yield savings account should be the first stop for at least part of your $10,000.

Keeping your emergency fund in a high-yield savings account will keep it safe, close, and allow you to earn a little bit of interest along the way.

Here are our favorite high-yield savings accounts.

Debt Pay-off

If you have high interest rate debt, such as credit cards, or loans with large payments, such a car loan, consider paying these down as much as possible.

Anything you are paying in interest is a guaranteed return on your money. It’s interest you’ll no longer be paying. Also, if you have loans with large payments you can free up a lot of cash in your monthly budget if you can eliminate that debt. That’s money you can use every month to save or invest instead.

How to Invest $10K

If you have your financial foundation in place, then you can start investing.

Index Funds, Mutual Funds, and ETFs.

If you are ready to start investing in the stock market you should consider index funds, mutual funds, and ETFs. They are similar in many ways. They are all a collection of individual stocks of which an investor can buy a slice of the whole collection.

The main differences are how they are managed and how they are traded.

Index funds aim to follow a specified index, such as the S&P 500. Because they are passively managed they typically have very low fees. They are traded once per day after the market closes. You will always buy and sell at that day’s closing price.

Mutual funds are actively managed by fund manager who invests according to the specified objectives of the fund. Mutual funds tend to have higher fees since they are actively managed, however they also have more flexibility to respond to the market because they aren’t tied to an index. They are also traded once per day after the market closes.

Exchange traded funds, or ETFs, can be managed like index funds or mutual funds depending on the specific fund but they are traded constantly throughout the day, like stocks.

Learn more: How to Invest in Index Funds

Bonds

Bonds are another common investment. When you buy a bond you are effectively loaning money to the issuer of the bond - typically a corporation or government.

In return, you’ll receive a fixed interest rate for the duration of the bond. You’ll receive income payments each month and at the end of the bond’s term you will receive your original principal back.

There is a risk of default with bonds. If the issuer is unable to pay back the loan, they may default. You can reduce this risk by buying bonds from governments and well-established companies.

You can sell your bond before it matures but the price other investors will be willing to pay will fluctuate based on current interest rates. If interest rates rise after you’ve purchased the bond, then the bond itself is not as valuable. However, if interest rates fall your bond becomes more valuable since the higher rate is attractive to investors.

Learn more: How to Invest in Bonds

Retirement Accounts

If you are interested in investing in index funds, mutual funds, ETFs or Bonds you can do so inside of two different types of accounts - retirement accounts or taxable accounts.

The difference between the two types is how they are taxed.

IRA

IRA stands for individual retirement account. If you are not going to max out your IRA this year, then look into taking that $10,000 and fully funding this year’s, and maybe next year’s, IRA contribution.

If you have a Traditional IRA, you will get a tax deduction for any money you put into your Traditional IRA. However, when you withdraw money in retirement you will pay income taxes.

If you have a Roth IRA, you will not get a tax deduction for contributions but withdrawals in retirement will be tax free.

Inside of your IRA you can invest in stocks, mutual funds, index funds, ETFs and more.

401(k)

If you are maxing out your IRA this year you can also look into investing your $10K into your 401(k). This is a little trickier since you can’t contribute directly to your 401(k), instead contributions need to come out of your paycheck.

In this case, increase your 401(k) contributions from your paycheck and use the cash on hand to backfill your check. For example, if you increased your 401(k) by $1,000 per month, you could take $1,000 per month out of your $10K stockpile to supplement your income. After 10 months you could return to your normal 401(k) contributions.

Learn more: Roth vs Traditional vs 401(k) - The Math Behind this Important Decision

Brokerage Account

If you are already maxing out the retirement accounts that are available to you, you can open a taxable brokerage account.

With a taxable account you don’t get a tax break when you contribute or when you withdraw. When you withdraw you will pay taxes on any gains you’ve realized. However, unlike retirement accounts, there are also no rules as to when you can withdraw the funds.

Real Estate

If you are looking to diversify outside of stocks and bonds you may consider real estate investing. $10,000 probably isn’t enough for a down payment on an individual investment property but that doesn’t mean you can’t invest in real estate.

REITs

Real Estate Investment Trusts, or REITs, are mutual funds that own and operate income-generating real estate properties. These properties can include commercial office buildings, retail centers, apartment complexes, and other types of real estate. You can buy slices of the whole for much less than it costs to buy a property. REITs are structured as trusts or corporations and are publicly traded on stock exchanges.

REITs offer investors the opportunity to invest in real estate without directly owning property. Instead, investors can buy shares in a REIT and earn dividends based on the rental income generated by the properties owned by the trust. Some REITs also generate income by buying and selling properties at a profit.

Crowdfunding

Crowdfunding real estate is when multiple investors pool their money together to buy a rental property. Companies such as Realty Mogul, have platforms where you can view the available properties that are taking investors and make your investment.

The crowdfunding platforms will also manage the property and make distributions to the investors.

Crowdfunding allows you to invest in a specific property without having hundreds of thousands of dollars and you don’t have to be a landlord.

This is a testimonial in partnership with Fundrise. We earn a commission from partner links on DoughRoller. All opinions are our own.

Learn more: Real Estate Crowdfunding - Everything You Need to Know

Home Improvements

Investing in your own home allows you to maintain or grow the value of your home while also improving your quality of life.

Consider improvements such as finishing the basement, adding a deck fencing in the yard.

Also think about repairs or maintenance that needs to be done. If your roof needs replacing or the house needs to be painted, those might be good uses of the money. Staying on top of repairs can save you a lot of money later and keep the value of your home high.

Yourself

Don’t forget you can always invest in yourself. If updating your skills, or learning a new skill, would allow you to make more money then it’s a great investment.

Also, if there is a side hustle you’ve been wanting to start this $10k might be the boost you’ve needed. You could use the money to supplement your income while you build your business or invest equipment you need to get started.

Getting Help

If you are feeling a little overwhelmed and would like some help to invest $10k there are a few places you can turn.

Robo Advisor

With a robo advisor you will answer a few questions to establish your financial goals and risk tolerance. Then the robo advisor will determine an appropriate asset allocation for you. You will invest your money and the computer program will invest it and even rebalance on occasion to make sure that your funds stay appropriately allocated.

You can learn more about robo advisors here.

Financial Advisor

You can also speak to a financial advisor. Financial advisors who get paid based on a percentage of your balance may require higher balances to take you on as a client. But don’t get discouraged. There are financial advisors who work on flat fees, so while you’ll have to cut this advisor a check to meet with you, you will not owe ongoing fees like you would if you paid on a percentage basis.

A fee only financial planner can discuss your goals and risk tolerance with you and suggest appropriate investment options. Definitely worth the money if you aren’t feeling confident but want to make sure you are using the money the best way possible.

Here’s more information about financial advisors.

Things to Consider before Investing $10K

Before you get invest $10k there are a few things to think about.

Financial Goals

What are your goals for this money? Is it income? Is it growth? Perhaps something else?

Knowing what you want to get out of your money is an important first step in deciding where to invest it. If it’s growth, you’ll likely want to consider stocks. If it’s income, then perhaps you want to look at bonds.

If it’s something else, like starting a side hustle, then you’ll want to do your research around that.

Risk Tolerance

How much risk you are willing to take is another important factor. If you are investing for the long term, say over 10 years, then you can withstand a lot more risk than if you will need the money in less than five years.

But length of investment time isn’t the only factor. Your personality also plays a part. If you find that you have a long-time frame, but still have a hard time taking on risk consider working with a financial planner. They can explain the risks and rewards of each investment and help guide your investment decisions.

Taxes

Tax planning is also part of investing. Saving money on taxes means more money to invest. Saving in a retirement account is the easiest way to reduce your income tax.

Investing in a traditional IRA or traditional 401(k) will reduce your taxable income this year. While investing in a Roth IRA or Roth (401k) will give you tax-free withdrawals in retirement.

Bonds are another way to receive tax benefits. Income from municipal bonds is generally not taxed at the federal level and if you live in the issuing state, it’s not taxed at the state or local level either. Federal bonds may exempt from state and local taxes as well.

Summary

Having $10,000 to invest can go a long way towards improving your finances. You can use it to set up an emergency fund, pay off debt, build your retirement savings, invest in real estate, or improve your own life by doing some home repairs or starting a business.

As long as you use the money to improve your future it will be a good investment.