A lot of people tend to think that the words ‘savings’ and ‘investments’ can only be attributed to certain amounts of money and that you have to have a lot of money, maybe over $100,000 before you can think of some serious investing.
Thankfully, we live in a world where banks and other financial institutions have gone further than stocks and securities, and it is now possible to invest even $50,000 in some really profitable assets.
Needless to say, when you have an amount this big with you, it is a wise idea to check if a part of this needs to be allocated towards priorities such as clearing debts or student loans, or even putting away a sizable amount, say $15,000 towards an emergency fund to tide you over in tough times.
Having said this, here are some good ways to invest 50k wisely, with diverse options for every person’s risk tolerance.
$50,000 Investment Options
One main point to cover before we get into the investments themselves, you should always look to diversify your portfolio. Even if I were only making a $5,000 investment, I would make sure to not put more than 20% into any one area.
If you are a bit too apprehensive about investing in stocks or mutual funds yourself, there are lots of online investment platforms that essentially put your money into self-pilot mode. Also called robo-advisors, platforms like Betterment are great because everything from investment selection to rebalancing and allocating assets is taken care of and at really reasonable costs.
Betterment allows you to take a quick questionnaire and determine how much risk you want to take. From there they do all the investing for you.
Betterment is perfect for those who aren’t particularly good with understanding the market, and this is only one of the many ways technology and data are making lives more productive. You don’t have to deal with the struggle of making multiple decisions, or constantly juggling between where your money is and where it should go next.
Peer to Peer Lending
I have been personally using P2P lending as an investment for over a year now and I am a huge fan. LendingClub is the industry leader with over two million users and now over $33 billion dollars in loans.
If you are not familiar with peer to peer lending, it works by individuals who need a loan going through a credit worthiness process. Those who are eligible, according to LendingClub’s standards, will have their loans listed on the marketplace where individuals can invest in the loan. As an investor, we get access to the interest these borrowers pay.
The best part of this investment is that you can invest in one note with only $25. This gives everyone the opportunity to diversify into a bunch of loans at one time. With a $10,000 investment you can purchase a small piece of 400 different loans. That way if any one loan doesn’t pay out, you only lose 0.25% of your investment. LendingClub has kept stats on investors and 99% of investors with 100 loans or more have a positive return. Personally, I am averaging just over 11% in my first year and a half, but LC tells people to expect more in the 5%-7% range.
Real Estate Investment Trusts (REITs)
These operate very much like mutual funds, only they are created specifically for the real estate sector. Essentially, REIT’s enable individuals to invest in real estate portfolios – while this isn’t the same as investing towards your own property, you get to see returns from a wide range of properties ranging from apartment complexes to shopping malls, as well as commercial spaces like warehouses and office buildings. Most commonly, REIT’s operate by paying dividends to their investors in the form of rent collected from leasing these properties.
It used to be difficult to participate in REITs because you had to be a accredited investor or have a very large sum of money to participate. That has all changed with the emergence of Fundrise. Fundrise allows you to start investing in their REIT accounts with only a $500 investment. They also have no requirement to be an accredited investor, making them one of the most accessible REIT in the market. Returns on Fundrise for the last year have been over 11% which is a pretty rowdy rate of return.
This is a great diversification play with a really nice rate of return.
Index funds are a type of mutual funds structured in order to keep tracking the results of a market index. This way you get to take advantage of all the stocks that are a part of the index without having to buy individual stocks.
If you’d like to see some math, here it is. If you were, for example, to invest $5,500 annually, which is the maximum amount for an IRA, you would have amassed over half a million dollars in a period of 30 years, with an estimated rate of 7% on return on investment and 7% is a more than reasonable number when you consider the history of the stock market averages right around 11% and there are entire stock market index funds so you can always go that direction.
There are a ton of brokerages or CFPs through whom you can purchase Index Funds. I would suggest doing your research on your own and saving a ton of money in trading fees using one of these brokers:
All of these brokerages have low fees for index funds and have great tools for exploring which funds are right for you.
High Yield Savings Account
Like any starting investment, it’s a good idea to look at the safest option that’s out there. High-yielding savings accounts, simply put, are savings accounts with banks that offer a much higher rate of interest.
A lot of banks offer these to customers who have a reputed banking history and are willing to lock away a sizable amount in these accounts. There’s nothing to be done on your part once you open the account and deposit your fund, other than to watch the interest accumulate over the years.
Now you may be thinking that your average account will only get you 0.1% interest, that is true of your standard bricks and mortar locations, online banks have streamlined their operations and offer interest rates similar to that of the best CD accounts. While you are not going to get amazing rates with any bank, high interest savings may be the best way to invest 50,000 dollars short term.
Top interest rate banks include:
With any of these banks you will get at least 15x the interest rate you get at your traditional bricks and mortar bank and they are all FDIC insured. So if you are looking at how to invest 50k cash, this might be your best option for a holding area, before getting into other investments.
One of the best investment options for retired individuals is a Roth IRA. If you’ve received your pension or social security, or have returns from other investments, you could definitely look at investing your money this way. Plus a Roth IRA is definitely a great investment idea for an amount like $50,000 since it leaves you free to access your money at any time you want, with absolutely no restrictions.
The best part? You can access the money you invest without paying a single dollar in taxes or withdrawal penalty (you will pay a penalty on any of the interest earned if you withdraw it early). Not only this – you use after-tax dollars to pay towards a Roth IRA, so your future profits coming out of it are exempted from taxes as well.
You can open a Roth account at any normal brokerage. Some of the best places to open an Roth IRA are:
As we mentioned above Betterment is a robo-advisor and will handle all the investing for you . Both Ally Invest have a wide variety of investments for you to choose from and offer both mutual funds and ETFs to make diversifying easily.
While precious metals like gold and silver aren’t directly impacted by the stock market, they do have a more direct relationship with the rise and fall of the dollar. You can’t exactly predict that, can you? While this makes precious metals somewhat unreliable in terms of their value, they come with a host of benefits – one, they are actually an asset you can have complete possession of.
This means that while their value might go down with that of the dollar, they aren’t going anywhere far from you, and you can always wait for an optimal period before you trade them for money. You can buy gold or silver in the form of coins and bullion bars, and the best part is that if you have a serious financial crisis where your other assets are locked, these can function as a barter.
This definitely seems out of place, doesn’t it? Sure, you know wine can be really expensive, but wine as an investment? Yes! Sure, this one needs you to be a bit of a wine connoisseur, and the returns, like any other investment will only come along in a few years. But rest assured, this is legit. It isn’t something out of an inebriated imagination.
It is also one of the classiest ways of investing – you’ll need to invest in a cellar, in keeping meticulous records of your vintage wines, and keeping a close eye on the maturity so you know when to put them on the market. This is definitely an investment you can raise your glass to! One of the wines with the highest returns (nearly 14.3%) is the Chateau Pavie from the Bordeaux region of France, in particular with its 2004, 2001, 1999 and 1998 vintages.
US Treasury Securities
A good alternative to high-yielding saving accounts or cash deposits is to invest in US Treasury securities. There may be a lot more lucrative 50k investment ideas on the market, but these have remained, for decades, one of the most reliable and traditional ways for Americans to invest. While the interest rates on US Treasury securities is typically slightly lower (because the US Treasury is one of the highest rated debtors globally), it is still a worthwhile option to consider while making that $50,000 investment.
US Treasury securities come in four basic kinds: notes, bills, bonds and Treasury Inflation-Protected Securities. Bills are the most basic of these 4, with a maturity date of one year or less which also makes them a good asset to withdraw in case of need. Notes have a maturity of 2 to 10 years, and bonds start with a maturity period of more than a decade going all the way up to 30 years. Bills have the lowest interest rates and bonds, the highest.
The fourth kind of security – the treasury inflation-protected kind is more exciting, in terms of how it operates. Essentially, the principal value of the security will rise based on the increase in the consumer price index, which could make you money in addition to the actual interest on the security.
The US treasury has a portal called Treasury Direct where you can buy these securities as well as hold them, starting with denominations as less as $100. Bear in mind, that similar to the high-yielding savings account or the Roth IRA, you won’t get wealthier with this sort of investment, but it is definitely a good move if you’ve earned a sizable amount of money and want to keep it safe for cloudy days.
How I would invest $50,000
My two main goals when investing any amount of money is to make sure to get a solid rater of return and to diversify my investments to prevent a single investment from tanking and taking my entire investment with it. With that in mind, if I were planning on what to do with 50k, here are my investments.
$5,500 in a Roth IRA -You really cannot beat tax free retirement income and maxing out your Roth for the year is a great way to start out your $50k investment.
$10,000 Lending Club – I have had nothing but good experiences with this platform and would not hesitate to put a sizable investment with a diversifies set of loans.
$10,000 Fundrise – In my real world life this is one of the next investments I am going to make. The platform is easy to use and getting into real estate is a great diversification play.
$10,000 Betterment – I currently use Betterment as one of my families Roth IRAs and it has worked very smoothly, even with the recent ups and downs of the market.
$10,000 CIT Bank Savings – This would represent my emergency fund or a place to store money for other opportunities. I like have a few thousand dollars on hand in case a sweet deal comes along.
$4,500 Index Funds – Index funds are a great hands off approach and an easy long term investment decision. I would probably use Ally Invest for this account since they have some of the lowest fees of any brokerage.
At the end of the day, the most important word I want you to take away from this exercise in investing $50,000 is diversify. So many people lose thousands of dollars by putting all their eggs in one basket. Don’t be that person, and go out and start investing!