Updated February 12, 2018

Best Ways to Invest $10,000

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Have $10,000 to invest? Here are 10 smart investments ideas that will turn that $10,000 into even bigger money.

What would you do if someone handed you $10,000? Would you go on a shopping spree, put it in a savings account, or contribute to the latest trendy investment?

Before you decide, consider your options. Come up with a strategy - and increase your chances of making a smart decision.

Read on for ideas on how to make the most of your $10,000.

What to Consider Before Investing

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Before the money burns a hole in your pocket, consider your goals and timeframe. Are you going to need to use it anytime soon? If so, avoid putting it somewhere that's too risky, especially if you might need it in the short-term.

Read on to learn what you should consider.

  • Start with Your Goals
    What do you dream of doing with your $10,000? Will it fund a luxurious vacation, help you retire, or buy a house? First, categorize your goals as being long-term (retirement) or short-term (vacation).

    Determine the Timeframe
    Divide your goals into categories:

    • Less than 1 year = short-term goals
    • 1-5 years = intermediate goals
    • Greater than 5 years = long-term goals

    These timelines dictate the level of risk you may want to take. Here's a basic rule: The shorter the timeframe, the less risk you can take. The longer the timeframe, the more risk you may be able to handle.

    Riskier investments tend to have more ups and downs. Do you have time to ride them out - and perhaps get a greater return? It's a key question for every investment you make.

    Risk: The chances you take with your money. It is the level of variability of your investments, which may go up or down. It could hurt or help your financial situation.

  • Assess Your Ability to Take Risks
    Your personality helps determine your risk level too. If you worry a lot, less-risky investments may be better. Obsessing over your investments isn't healthy. They may cause you to make rash decisions, affecting your finances. If, on the other hand, you don't worry much, more risk may work if you're okay with potential losses. Knowing you are in it for the long run may help.

    In a perfect world, a balanced portfolio works best. It gives you a mix of risky and non-risky investments. When risky investments lose money, they can often be offset by more stable investments over time.

  • Understanding Risk
    More than one factor affects an investment's risk. Understanding these common factors can help you choose the right investment:

    • Market risk: These are market conditions you have no control over. If the overall financial market suffers, even diversification (basically having a balance of investments in your portfolio) doesn't eliminate risk. Many types of investments suffer. It's the nature of the market.

    • Business risk: If you invest in stocks, a company's corporate decision could affect your investment one way or the other. If the market perceives the company as making a bad decision, the stock price could plummet. If the majority sees it as a good decision, the stock may skyrocket, and your investment will gain money.

    • Political risk: Political events may affect the market. This pertains to domestic and foreign investments. Think about how the public reacts to major government events and decisions. These reactions often affect the financial markets.

    • Liquidity risk: The time and cost involved in converting an investment into cash contributes to its risk. The more time or cost involved, the higher the liquidity risk.

    • Concentration risk: The less diversified your portfolio, the higher your concentration risk. If you have all of your eggs in one basket, your risk increases. This is because if you only hold two stocks and one of those stocks plummets, your portfolio will take a big hit. But if, on the other hand, you held twenty stocks and one stock plummeted, your portfolio wouldn't lose as much of its value because it was less "concentrated."

    The higher the risk you take, the greater the reward. You also put your money at risk for loss. But if you wait out the loss, you may reap the reward of a higher return.

  • Evaluate the Fees
    Most people investing $10,000 don't hire a financial advisor. The fees alone would eat away your profits. Instead, they handle their own investments. Even without a financial advisor, though, you may pay fees. Look closely at the fine print before choosing an investment.

    Fees you should watch out for include:

    • Stock trading costs: Cost of buying or selling a stock
    • Annual fees: Cost of holding an account with a particular company
    • Account minimums: Fees you pay if you don't meet the required minimum
    • Account maintenance fees: Fees to have your investment accounts at the financial institution
    • Sales loads: Fees added to mutual funds upon purchase or sale (you should avoid these)
    • Advisory fees: Annual fees paid to the investment professional assisting with your portfolio
    • Expense ratios: Annual fees charged by mutual funds or ETFs, as a percentage of assets

Just as you might comparison shop for large ticket items, you should do the same for an investment firm. Ask about their fees. You may even be able to negotiate some of them. Keep in mind, though, if you decide to change brokerage firms, you may face tax consequences. For more information on fees, see How to Invest Money.

If you are unsure about a brokerage firm, a great tool to use is BrokerCheck. They provide information about a broker's background, experience, and prior complaints.

Before Investing

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Before you jump right into finding the right broker, take inventory of your financial life. Ask yourself the following:

  • Do you have a lot of personal debt?
  • Do you have a 401(k)?
  • Do you have an IRA?

You may want to get a handle on these things first. We talk about each item in detail below.

  • Pay Down Your Debts
    Investing doesn't sound like paying debts down, but it really can be! Here's an example.

    You can obtain a 5% rate of return on your investment portfolio. But you have $5,000 in credit card debt and you pay 23% interest. If you invest your $10,000 rather than paying the $5,000 off, you lose 18% (= 23% - 5%). Instead, pay off the credit card debt first. You can then invest the remaining funds using one of the strategies below.

    Rate of return is the profit off an investment. Banks write it as a percentage. On a $1,000 investment, if you make $50, your rate of return equals 5%.

    Keep in mind that some interest is tax deductible. Credit card interest isn't one of them. Home mortgage interest is, though. This puts you in a different boat. In this case, you look at your after-tax rate of return. Here's an example.

    You pay a 5% mortgage interest rate, and you are in the 28% income tax bracket. You only pay 3.6% in mortgage interest after taxes (= 5% x (1 - .28)). If you find an investment with a rate of return higher than 3.6%, it makes sense to invest rather than pay down your mortgage. Once you pay down your debts, we recommend you focus on your retirement plans.

  • Plan for Retirement
    Ask yourself two questions:

    • Do you have a 401(k)?
    • Does your employer match contributions?

    If you don't have a 401(k), you should. It becomes even more important if your employer matches contributions. Even if they match just some of your contributions, it's free money. Take it. If you have a 401(k) but haven't maximized the amount your employer will match, start there. Don't leave free money from your employer on the table.

    What if you maxed out your 401(k) contributions or you are self-employed? You can contribute pre-tax income to an IRA in any amount. In 2018, you can also contribute up to $5,500 post-tax in a Roth IRA, which can be great because you won't be taxed when you retire later. You can invest in either type of IRA all at once, unlike a 401(k). Even if you have a 401(k), you may want to consider funding an IRA as well. As you plan for retirement, you can consider other investment options.

Investment Options

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Now we get to the fun stuff - investing. You've done your homework. You have set goals and timeframes. You understand risk and potential fees. You made sure you are out of debt and have proper retirement accounts. Now it's time to invest. Here are some traditional options for investing $10,000.

  • Invest in Mutual Funds
    Mutual funds and ETFs offer diversification. They operate differently than stocks. Rather than investing in one company, they diversify between stocks, bonds, and other short-term investments. They can invest in many securities all at once.

    First, choose a brokerage. Charles Schwab, Vanguard, and Fidelity are among some of the most popular. See How to Invest Money for more detail.

    Longer-term goals, such as retirement, do well with index funds. These funds mimic a specific index, such as the S&P 500. They offer diversification and a long-term investment strategy. The returns on index funds closely mimic market returns. They require very little management and often have lower fees.

  • Try a Robo Advisor
    If you think $10,000 isn't enough for a financial advisor to take you on as a client, consider a robo advisor. This automated advisor - really, a software program - does the work for you.

    See Why Consider a Robo-Advisor for more information.

    Betterment stands out as the leader in the robo-advisor industry. Read our in-depth review on Betterment to learn more.

    Tip: Robo advisors are not people. You won't get personal advice or even a person to speak to in some cases. If you prefer conversations with a person, you can pay for a higher tier with a company like Betterment. This gives you access to a professional advisor along with the basic Betterment services.

  • Invest in Stocks
    You don't need a stockbroker to trade stocks. Today, you can use an online brokerage account, such as E*TRADE, among many others. Choose a company offering a simple interface and resources for new investors. Read How to Invest in Stocks for Beginners for more.

    Once you choose an online broker, create an account. As a customer, you may have access to more resources. Take your time reading about each company. Read news, stock performance histories, and professional forecasts. Then choose one or two stocks to start your investment. Hold off on investing a lot until you have a good handle on the process.

    Once you have a handle on investing in stocks, create a plan. Have a set amount you want to invest. Also, set a threshold for the amount you can lose. This way you can remove the emotion from the process. Seeing your money plummet can force you to make a hasty decision. Have a plan in place and stick to it.

10 More Ways to Invest $10,000

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If you prefer something other than the ordinary investment tactics, don't worry. We have 10 more ways to help you invest your $10,000. Some are admittedly ordinary, such as CDs and savings accounts. Others help you think outside the box.

Sometimes investing means something more than putting money in an account. Maybe you invest in yourself or in a business. Your rate of return may be much higher when you consider different options.

  1. Look at CD rates
    If you are looking for a risk-free investment with decent returns, look at CDs. We recommend using an online bank rather than a traditional bank. They tend to offer higher rates.

    With CDs, the longer you invest the money, the higher the APY (Annual Percentage Yield). Also, the higher the account minimum required, usually the higher the APY. Today, you may see a rate of return between 1% and 1.5% on 1-year CDs, but the rates can go up to as much as 2.25% for longer-term products.

  2. Fill a savings account
    When we talk about savings accounts, we don't mean the account at your local bank where you have a checking account. They probably offer measly returns. We mean online savings accounts where you could obtain rates as much as 10 times higher than your local bank.

    You should consider a few things before you invest. Make sure the FDIC insures the bank. Also, read the fine print regarding withdrawals. Make sure you have access to your money when you need it. Some banks may charge fees for withdrawals. Check for required account minimums too. If you prefer a debit card, look for banks that offer this service.

  3. Give peer-to-peer lending a shot
    Peer-to-peer lending is a somewhat new method of investing. It's a good choice for investors who don't want to deal with a financial institution. Instead, you become the lender. By joining a P2P platform, you can connect with borrowers all over the world.

    The benefits of P2P lending are the high rate of return and lower risk. As an investor, you may pay an origination fee, closing fee, or an annual fee. Lending Club and Prosper are the top two P2P platforms operating today. They work as the intermediary between you and the borrower. They fund the loans (after you pay them), collect payments, and help with litigation should the borrower default. You can diversify your risk by lending money to multiple borrowers at once. Your $10,000 could fund many borrowers with low borrowing needs.

  4. Try a new investment platform
    If you prefer a little more control over what you invest in, consider Motif. As the investor, you create your own mutual fund. You also have the option to invest in someone else's motif. These are different from pooled funds, like mutual funds.

    With Motif, you own the stocks within the investment, but you determine the dollar amount invested. You don't buy a specific number of shares. As a bonus, you don't pay administrative or management fees. Motif is a hybrid of the robo advisor and a DIY investment strategy. You control certain factors, such as the industries you want to invest in, and Motif does the rest.

  5. Invest in yourself
    Did you ever think of investing in yourself? Taking online courses, going back to school full-time, and hiring a personal coach are a few ways you can do this. No matter the avenue you take, you gain new knowledge and skills.

    You can take these skills out into the world and make money. Your new skills may provide new opportunities for employment, especially if you add a designation to your title. Certain designations offer you the opportunity to be listed in online directories, such as a CPA. This may result in more business and earnings for you. It's also a great way to enter a new industry. The money can help you make smarter decisions, try new opportunities, and make more money.

  6. Start your own business
    Another way to invest in yourself is to start your own business. If you are tired of the 9-to-5 grind and want to answer to no one but yourself, this could be your chance. You may need to combine #5 and #6 for the best outcome. Unless you have a lot of experience in the industry, a little coaching or education could help you succeed.

    We recommend visiting the Small Business Administration's website before starting. They offer many resources and steps for beginners and even the experienced business owner.

  7. Try Fulfillment by Amazon
    Fulfillment by Amazon is like other selling sites, but easier. You supply the items you sell, but you ship them to Amazon.

    You market the products on Amazon's website. Once sold, Amazon ships the items for you. It's the simplest form of selling products online. You don't need coding, graphic design, or social media experience for success. You have access to Amazon's large marketplace of buyers, and you only do a fraction of the work involved with other selling sites. It almost provides immediate gratification. You can sell new or used items. You can also choose between the individual account (a free account) and the professional account ($39.99 per month).

  8. Fix up your home
    Your home may be your largest investment. It may also be outdated or need a facelift. Certain improvements can have a direct impact on your home's value.

    You don't need to make drastic changes to see a large improvement in value. In fact, major bathroom and kitchen remodels often don't have a large return on investment. New siding, new roof, and new windows often pay off better. Small changes within the kitchen or bathroom, such as the addition of granite countertops, often pay off. Another change with a large ROI is updating the home's curb appeal. You may even get bonus points for energy efficient changes you make. Depending on the tax year, you may get a tax break for the new changes made.

  9. Start a blog
    If you aren't sure about quitting your 9-to-5 job just yet, but have a passion for the DIY, consider starting a blog. Many people use this as a side gig. They write when they have time and become affiliate partners with businesses to make money.

    Starting a blog won't cost $10,000, but having some capital helps. For starters, you can further your education before starting. Take classes on starting a blog or get in-depth training in your chosen industry. The more you have to talk about, the better, so education helps. You'll also need money for the domain name, platform, and website hosting. You may also need to upgrade your computer equipment, camera, microphone, and video equipment.

  10. Start a podcast
    If writing isn't your thing, but you love to talk, consider starting a podcast. It works like a blog, but you don't host a website. You will need a host for your podcast, though. When you first start, your free website may offer enough support. As you gain more followers, you may need greater capabilities. Too many listeners can cause glitches in your podcast. This could be bad for your following.

    Today, SoundCloud and Amazon S3 top the charts in podcast hosting. No matter which you choose, read the fine print. Some services, including Amazon S3, charge a base fee, but it increases as your following increases. Just like a blog, though, you can monetize your podcast. You can sell advertising time within the podcast or let a company advertise on your host page. This can help you afford the podcast hosting fees.

The Bottom Line

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Your $10,000 has a promising future. Stop and think about your plans. Then answer the following questions.

  • Evaluate your situation: Do you have a retirement account? Do you contribute the maximum amount to it?
  • Are you in debt? Is your interest rate higher than any rate of return you could get?
  • Do you understand mutual funds, robo advisors, and stocks?
  • Do you want to try something unique?

Knowing your situation will help you make a more informed decision. Many investment options have small minimum requirements and low fees. Shop around and look at your options to make the most of your $10,000.

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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