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How To Invest $10K: The 10 Best Ways

Written by Paul Esajian

If you have $10,000 in your checking account, you’re not putting your money to optimal use. Money in a checking account gains zero value, and when you account for inflation, you’re actually losing money. By investing your money instead, you can watch it grow.

Here, we’ll discuss how to invest 10k for maximum returns.

10 Best Ways To Invest $10,000

There are any number of ways to invest your hard-earned cash. We decided to focus on the following 10 methods:

  1. Mutual Funds & Exchange-Traded Funds (ETF)

  2. Real Estate Crowdfunding

  3. Real Estate Investment Trusts (REIT)

  4. Rehabbing & Home Improvements

  5. High-Yield Savings Account

  6. Start Or Add To An Emergency Fund

  7. Self-Directed Brokerage Account

  8. U.S. Treasuries

  9. Fund Your Retirement Account

  10. Use A Robo-Advisor

1. Mutual Funds & Exchange-Traded Funds (ETF)

Mutual funds and ETFs are some of the world’s most popular investments, and it’s easy to understand why. Choosing your own stocks and bonds can be a major challenge. Unless you’re prepared to keep a vigilant eye on the market, it’s almost impossible to know which stocks to invest in. With a mutual fund or ETF, the fund takes care of that for you. All you have to do is choose a fund that aligns with your goals.

It’s worth pointing out that there’s a big difference between mutual funds and ETFs. A mutual fund has managers who choose which stocks to invest in. These human managers use their knowledge and experience to build a portfolio that they believe will beat the broader market. Then again, there’s no guarantee that this will actually work. Over time, most mutual funds perform less well than the market as a whole.

Most mutual funds will require you to make a minimum investment, $1,000 at the very least. And minimums of $3,000 are not uncommon. This can make it hard to invest in multiple funds if you’re starting with $10,000. Not only that, but mutual funds charge higher investment fees in order to pay their managers. In addition, many mutual funds charge between 1% and 3% of your investment, either upfront or upon the sale of your investment.

ETFs, on the other hand, are almost always index-based. This means that they’re built to track a particular index, most often the S&P 500, which consists of the 500 largest publicly-traded companies in the United States. When you invest in the S&P 500, you’re basically investing in the entire U.S. economy.

Because an ETF invests in index stocks, your investment’s performance will track with the index. So if you’re investing in an S&P 500 ETF, your investment will increase or decrease at the same rate as the index itself. You’ll never beat the index, but you won’t fall short, either.

That said, not all ETFs invest in the S&P 500. You can invest in ETFs that track indexes for developing countries, the energy sector, the financial sector, and all kinds of sectors. In that case, you won’t be tracking with the S&P 500, you’ll be investing in that index.

ETFs also have no minimum investment and very low trading fees. As a result, you can easily diversify your $10,000 investment across several ETFs, which track several industries, regions, and sectors.


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best way to invest 10k

2. Real Estate Crowdfunding

Real estate investment represents an excellent opportunity for long-term growth. You can invest in single-family property developments, large apartment buildings, or even commercial and industrial real estate.

With crowdfunding, you don’t have to be a billionaire to invest in a major project. Via a peer-to-peer crowdfunding program, you can look at various properties and choose which one to invest in. These can be new properties or existing properties. Some projects may be purchasing properties for the rental income, while others will buy properties, renovate them, and sell them for a profit. There’s sometimes a combination of the two, where investors will renovate a property, rent it out for a time, and sell it for a higher price some time down the road.

That said, you also need to be aware of the risks. Real estate tends to increase in value over time, but an individual property can easily lose value. Moreover, you can’t take your money out once it’s been invested. You have to wait for the project to complete and the funds to pay out. In many cases, the timeline of the project is longer than 10 years. Most other investments can be sold whenever you want, so they can serve as emergency savings if you find yourself in financial distress.

A lot of crowdfunding platforms restrict their services to accredited investors. Accredited investors are people with high earnings or high net worth, so they can absorb potential losses. To become accredited, you need to earn $200,000 a year for two consecutive years, or $300,000 combined income if you’re married. Either that, or you can have a net worth of more than $1 million, not including your primary residence. These are the same people who are allowed to invest in privately-traded stocks and other high-risk investments.

Then again, there’s no legal requirement to limit real estate investment to accredited investors. Many crowdfunding platforms will let anybody invest, provided they can afford the minimum investment for the project. In some cases, this minimum can be as low as $500 – a small slice of your $10,000.

3. Real Estate Investment Trusts (REIT)

If you like the idea of investing in real estate but are leery of crowdfunding platforms, there’s another option. You can invest in a real estate investment trust (REIT). An REIT is similar to a mutual fund, but instead of investing in a swath of stocks, you’re investing in a selection of real estate properties, most often commercial spaces.

Investing in a REIT is also analogous to purchasing a stock. You buy a certain number of shares, which give you an interest in the REIT but not direct ownership of any of the properties.

The most important advantage of a REIT is the dividend income. By law, REITs are required to pay a minimum of 90% of their annual income in dividends. Across the industry, this works out to an average return of 11.8% per year. As with any investment, though, different REITs will have different performance, and there’s no such thing as a guaranteed return.

4. Rehabbing & Home Improvements

If you own your home, you can put your $10,000 into home improvement. This won’t directly improve your financial situation. But it can increase your home’s value – sometimes substantially. This won’t just get you a better price when you sell your house. By increasing your home’s value, you also increase the amount of money you could borrow on a home equity line of credit.

Of course, different improvements will net you a different return on investment (ROI). Here are the 10 home improvements that net the highest average ROI.

  • Minor bathroom remodel – 102% ROI

  • Landscaping – 100% ROI

  • Minor kitchen remodel – 98.5% ROI

  • Attic bedroom conversion – 93.5% ROI

  • Major bathroom remodel – 93.2% ROI

  • Major kitchen remodel – 91% ROI

  • Entry door replacement – 90.7% ROI

  • Deck, patio, or porch addition – 90.3%

  • Basement remodel – 90.1%

  • Replace windows – 89.6%

5. High-Yield Savings Account

Strictly speaking, a high-yield savings account isn’t an “investment.” You’re only earning a small percentage compared to most other investments, but it’s better than leaving your money in a zero-interest checking account. It’s also a good way to store your money short-term, if you’re expecting a major expense like a wedding or cross-country move.

The nice thing about savings accounts is that they’re easy to open. You can even open an account online and start earning 2% per year per more. And unlike stocks and similar investments, your money is guaranteed. The FDIC insures U.S. savings accounts for up to $250,000 per year, so you don’t have to worry about your money disappearing or your savings losing value.

6. Start Or Add To An Emergency Fund

If you don’t already have an emergency fund, that’s really the first thing you should be doing with your $10,000. Most investment advisors recommend keeping at least three to six months’ worth of expenses in a savings account. If you unexpectedly lose income or incur added expenses, you won’t have to borrow money. Even if you don’t put the entire $10,000 into savings, it’s smart to stock some away for a rainy day.

If you want a little more growth potential, think about investing in a money market fund. They generally earn better than a savings account, but there’s also the potential for loss. You can also purchase a CD for a higher interest rate, but you’ll pay a penalty if you withdraw your money before the CD matures.

what to do with 10k

7. Self-Directed Brokerage Account

A self-directed brokerage account is an account with a major brokerage that allows you to direct your own investments. The most common investments are stocks and bonds. But a brokerage can also help you with option trades, mutual funds, ETFs, and REITs.

Brokerages will charge a commission for their services, which can vary depending on the brokerage. You’ll typically get more robust service with higher commissions, but that’s not always the case. It’s smart to shop around, and find a brokerage with reasonable fees and a good reputation.

A self-directed brokerage is designed for people who want to manage their own investments. You need to be comfortable choosing which stocks to invest in, and you need to be willing to accept any losses. Then again, if you get a kick out of choosing your investments, you’ll have plenty of opportunity.

8. U.S. Treasuries

U.S. Treasuries are literally U.S. government debt. These are some of the safest investments in the world, since they’re backed by the full faith and credit of the U.S. government. Unless the United States goes bankrupt, you’re going to earn your return. That said, you have to invest for a specific term. Until the term is over, you won’t be able to access your money.

There are four types of U.S. Treasury investment:

  • Treasury bills, or “T-Bills,” have the shortest term. They can last from one to 12 months, so you get your money quickly.

  • Treasury notes mature after two, three, five, seven, or 10 years, but they pay interest every six months.

  • Treasury bonds are the longest-term Treasury investments, and take 20 to 30 years to mature. They pay interest every six months, though, and the rates are higher than shorter-term investments.

  • Treasury inflation-protected securities (TIPS) mature after five, 10, or 30 years, and pay interest every six months. But the balance increases with the CPI, so you won’t lose value due to inflation.

9. Fund Your Retirement Account

A small percentage of people are lucky enough to be doing jobs they genuinely love. These people plan to work as long as possible because their job is also their passion. The rest of us would eventually like to retire, and investing in a retirement account is an investment in your future.

Most people use either an IRA or a 401(K) to make their retirement savings. Let’s take a quick look at both.

An IRA, or individual retirement account, is a fund you invest into from your own money. Most IRAs are tax-deferred, which means you don’t pay any tax on the money you deposit. Instead, you only pay taxes on money that’s withdrawn from the IRA. That said, you can’t withdraw money before age 59 ½ without paying a penalty. With a Roth IRA, you pay taxes upfront, but as long as the money is deposited for at least five years, you don’t pay any taxes on withdrawals. Keep in mind that for the current tax year, the annual IRA contribution limit is $6,000, or $7,000 for individuals aged 50 and up.

A 401K plan is a retirement plan where you deposit a certain percentage of every paycheck. These deposits are tax-free, and you only pay taxes when the money is actually withdrawn. As an added bonus, most employers will match up to a certain percentage of your deposit. Let’s say you deposit 5% of each paycheck, and your company matches up to 5%. With that 5% match, you’re not just saving for the future; you’re giving yourself a tax-free 5% raise!

10. Use A Robo-Advisor

A robotic advisor is a lot like a human financial advisor, except they’re an algorithm. Your costs are significantly lower because you’re not paying an actual human. Most human investment advisors charge between 1% and 2% of your balance as a management fee, while robotic advisors charge as little as 0.25%. There’s also no minimum investment in most cases, so your $10,000 will be plenty to get started.

Of course, no system is perfect, and you won’t get the same human interaction that you will with a traditional financial advisor. And some robo-advisors offer poor advice, so you’ll want to shop around to find the best robotic advisor.

Before You Start Investing Your $10K

Before you make any investment, of any dollar amount, you want to understand your goals. To begin with, ask yourself whether you’re looking for short-term or long-term gains.

For short-term investments – less than 24 months – it’s best to stay out of riskier options like stocks. A high-yield savings account offers far less potential, but you at least know the money will be there when you need it.

For longer-term needs, you can afford to take more risks. Events like Covid-19 and the Russian invasion of Ukraine can hurt the market during the short term. But on a longer timescale, the market goes up over time.

Summary

Determining how to invest 10k comes down to your goals and how much risk you are willing to take on. However, all of these methods are an effective way to manage your money. Provided you choose the right method for your current life situation, you can find a lot of success. So take a leap, invest your money, and put it to work for you.


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The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.