How to Invest $50K

What can you buy with $50k? There are many ways to grow your money. Find out which investments have the best returns.

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Congratulations! $50k is a good chunk of change. Now, what to do with it?

You have a lot of options. Honestly, it's overwhelming.

But don't let it freeze you up and stop you from making a move. Missing out on years of growth is a big mistake.

And once you start, it won't be so scary. Check out this list of ideas to get started (plus 3 investments to avoid).

What to Do Before Investing

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Before you learn how to invest your money, first make sure you're on solid footing.

Ask yourself these two fundamental questions:

• Is my debt managed?
  
• Am I on track for retirement?

If your answer to either question is "no," here's what steps you'll need to take before you invest.

Paying Down Debts

If you have a lot of personal debt, most experts recommend that you pay it down before you start investing.

While it may not seem as exciting as investing, paying down debt is healthier for your finances in the long-run.

For example, say you can get a 5% rate of return on your investment portfolio, but you have $30,000 in credit card debt with a 23% APR. If you invest in that portfolio instead of putting those funds toward your credit card debt, you'd be losing money.

Some lower-interest installment debt, like an auto loan or a home mortgage, is considered OK. This is because debt like auto loans and mortgages has a fixed timeline for repayment.

By investing, you may be able to match (or even beat) the interest you are paying on your "healthier" installment debt. Essentially, you can still hold some debt while making money. With high-interest revolving debt (like credit cards), you are more likely to keep losing money even if you start investing.

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Have a Plan for Retirement

If your debt is under control, then consider whether you're on track to meet retirement goals.

First, make sure you enroll in any 401(k) plan that is available from your employer. Then, find out how much of your contribution your company will match. Contribute at least up to the matching amount—otherwise, you'd be turning down free money.

The amount you contribute to a traditional 401(k) will be deducted from your taxable income.

Even if your company doesn't match, consider contributing the maximum amount before you invest your money elsewhere. That will give your retirement savings a boost and lower your taxable income.

You may also want to consider opening a traditional IRA or Roth IRA to supplement your long-term retirement savings. Like a 401(k), these accounts also have tax advantages. For 2020, you can contribute up to $5,500 per year, or $6,500 if you are over 50.

Traditional IRAs allow you to deduct your contribution from your annual taxable income. Roth IRAs won't let you deduct that amount, but you will be able to withdraw the funds tax-free.

How to Invest $50,000

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Finally, once your debt is under control and your retirement plan is on track, you can explore ways to invest $50,000.

Here are several ways you could invest $50,000:

1. Take Advantage of the Stock Market

These days, you don't need a stockbroker to trade stocks. Instead, 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 to learn more.)

Once you choose an online broker, create your account and fund it with your desired starting investment. Before choosing your stocks, create a plan for yourself and understand how much you can afford to lose.

Now you're ready to invest. Read financial news, stock performance histories, and professional forecasts to pick a few stocks.

Try to choose ones that match your risk tolerance. Hold off on investing a lot until you have a good handle on the process.

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2. Invest in Mutual Funds or ETFs

Rather than investing in one company, as with stocks, mutual funds and ETFs diversify among stocks, bonds, and other short-term investments. With these funds, you can invest in many securities all at once.

First, choose a brokerage. Charles Schwab, Vanguard, and Fidelity are among the most popular brokerage firms. (See How to Invest Money for more.)

Longer-term goals, such as retirement, usually benefit from broader market index funds. These funds mimic a specific index, such as the S&P 500, and offer diversification and a long-term investment strategy.

The returns on index funds closely mimic market returns, which have ups and downs but have historically provided gains. They require very little management and often have lower fees.

3. Invest in Bonds

Buying a bond is basically buying debt and collecting the interest and principal. You can invest in bonds like you would invest in stocks. (See The Difference Between Stocks and Bonds for more information.)

Remember: you can calculate your return before you purchase a bond based on rate and maturity date.

As with any investment, bonds do carry some risk, even though the risk is very low. For example, your bond could default.

A bond can also lose value when interest rates rise. This means that if you choose to sell a bond before its maturity date, you could make less than the price you paid for it.

Generally, bonds must be purchased through a broker. However, T-bonds can be bought directly from the government.

4. Invest in CDs

If you are looking for a risk-free investment with decent returns, consider investing your $50,000 in CDs. We recommend using an online bank rather than a traditional bank like Chase because online banks 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.

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5. Fill a Savings Account

When we talk about savings accounts, we don't mean an account at your local bank where you already have a checking account. We mean online savings accounts that can offer rates as much as 10x higher than your local bank.

Before you invest, make sure the FDIC insures the bank. Also, read the fine print regarding withdrawals to note any fees. Finally, check for required account minimums too.

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6. Try Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a good choice for investors with $50,000 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 from all over the world.

As a lender, you may pay an origination fee, closing fee, or an annual fee. Lending Club and Prosper are the top two P2P platforms. They work as the intermediary between you and the borrower. They fund the loans (after you pay them), collect payments, and help with litigation if the borrower defaults.

You can even diversify your risk by lending money to multiple borrowers at once.

But remember: While P2P lending can offer a high rate of return, there is always the risk of the borrower defaulting on their loan.

7. Start Your Own Business

If you are tired of the 9-to-5 grind, investing $50,000 in your own business could be your chance to break free. Just be sure you have a solid business plan.

Unless you have a lot of experience in the industry, make sure you get all the help you need to succeed. We recommend visiting the Small Business Administration's website for advice on how to get started. They offer many resources and steps for beginners and even the experienced business owner.

8. Consider Real Estate Investing

With $50,000, you can still invest in real estate through other investment vehicles like Real Estate Investment Trusts (REITs). Fundrise and RealtyMogul are just two popular real estate investing platforms to consider.

You can invest in a share of a REIT just like you would invest in a stock. REITs provide can profits through the rental income they collect from properties or property appreciations.

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9. Try Fulfillment by Amazon

With $50,000, you can launch a retail business through Fulfillment by Amazon. Essentially, you ship the items you want to sell to Amazon (which can be new or used), which then fulfills any orders you get and ships your products to customers for you.

Rates vary by the sizes of the packages shipped and the amount of warehouse space you'll need, but $50,000 should be plenty to get a small operation going.

You'll 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.

10. Fix Up Your Home

Your home may be your largest investment. If it's outdated or needs 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. New siding, new roof, and new windows are usually worth the investment and pay off well.

Small changes within the kitchen or bathroom, such as the addition of granite countertops, can also pay off. Another change with a large return on investment (ROI) is updating the home's curb appeal. Depending on the tax year, you may get a tax break for energy efficient improvements.

11. Start a Blog or a Podcast

If you have a passion for DIY, consider starting a blog or a podcast. Many people use these as a side gig.

Blogs have the potential to make you a steady stream of income through advertising, and $50,000 is more than enough to start.

With that money, you can support yourself for a few months while you get the content going. You'll likely need some of that money to buy a domain name and web hosting service. Or, you may need to invest in equipment like video recorders, microphones, cameras, or a better computer.

The podcast world is increasingly difficult to break into, but there is still room to make money. You should be prepared to dedicate a lot of time and energy to producing regular content.

But, if it's something you enjoy doing, you may find the advertising deals you can get with podcasting can be lucrative

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12. Invest $50,000 in Yourself

You can also use your savings to take an educational course that can improve your career and your earning prospects. With this strategy, you could easily turn $50,000 into much larger earnings.

Hear from an Expert

CreditDonkey asked Professor Jason Reed from the University of Notre Dame for his expert opinion on what investments are considered "high risk."

Here's what he had to say:

3 Investments to Avoid

Some types of "investments" aren't really investments at all. In fact, you could easily lose your $50,000 if you put it into a risky scheme.

Here are some examples of what to avoid when learning how to invest $50,000:

• Penny Stocks
  Stocks that you can buy for less than $5 may seem like a great deal. After all, with $50,000 you could buy a lot of shares.

  But more often than not, they're not profitable at all. Companies that offer penny stocks are usually very small and don't need to disclose their financials. They may be trying to raise capital to grow, but they're not always successful in the long run.

• Pyramid Schemes
  You may have heard of businesses that promise to make you rich if you can recruit others to join them.

  If you're asked to pay to join a business with that type of model, be aware that it may be a pyramid scheme, which rarely results in a win-win situation for everyone.

• Gambling
  Yes, you could possibly win big gambling $50,000, but people rarely do. Statistically, you are much more likely to lose your money when you gamble.

  That's true whether you are playing in a casino or buying a lottery ticket. The odds are not in your favor, so, while gambling may be entertaining, it's a poor investment choice.

Bottom Line

You have a variety of choices for how to invest $50,000, from investing in the stock market to launching your own business. Weigh the pros and cons of each method of investing we described above to find the best one for you.

Remember to review your finances to make sure you are in the best position to start investing. And be aware of promising risky investments like penny stocks and pyramid schemes that may not be what they seem.

The bottom line is, the sooner you can start investing your funds in a safe way, the more you can benefit from the rewards of your investment.