I am often asked by family, friends and colleagues what to do when they have some extra cash to invest. If you have the same question as my people do, though, I want you to start thinking about how to invest $10,000 if you were to suddenly come into that money (perhaps through inheritance, savings, bank robbery or some other means).

There are many investment opportunities out there, and I’d like to walk you through some of the most common. While some of these may not seem like “investments” to you, they are.

After all, what is an investment but an expense or sacrifice paid now for some greater future benefit? Investing requires discipline and patience in the short term. But in the long run, it is rewarding for your body (i.e., exercise), for your mind (i.e., learning) and – when it comes to money – for your bank account as well.

Now, $10,000 may not seem like a ton of investment capital to you. But I assure you, if you use some of these investing ideas, it will go a long way toward helping you achieve both your financial and personal goals.

How to Invest $10,000 – Let Us Count the Ways

1. Stock Up Your Emergency Fund

If you have a spare $10,000 lying around or just came into some money, the first thing you want to do is make sure your emergency fund is good to go. Because you never know when your car or your air conditioning system is on the verge of breaking down.

And as a former Floridian, I can think of no greater horror than your air conditioner breaking down. Truly.

I wrote about the importance of having an emergency fund in my article about how to become financially independent, and I reaffirm that it is crucial here. 

At the very least, experts recommend you have three months’ worth of expenses stored up in your fund. Five or six months’ worth is even more ideal.

Keep your emergency fund in a high-yield savings account, which can be found at most banks and credit unions. While this will hardly make you a fortune, it will earn you a bit more than the paltry 0.9% offered by average savings accounts.

2. Pay Down Your High-Interest Debt

Once you have some emergency funds stored up, it’s time to stop spending like a drunken sailor – apologies to my drunken sailor friends – and pay down your high-interest debt. 

Doesn’t sound like an investment to you? Think again. 

Let’s say you take $10,000 and invest it in stocks for five years for a 5% return. At the end of the five years, you would have $12,763. So, you made $2,763. Not bad.

Now, instead, say you have $10,000 worth of credit card debt at an interest rate of 20%. If you pay down the credit card balance over the same five years, paying a monthly minimum of $265, you will have paid an extra $5,894 in interest fees on your credit card.

By paying off the credit card off immediately and canceling the $5,894, you save more money in future interest charges than you would make by earning the $2,763 from stocks.

In this case, each penny – or dollar – saved really is a dollar earned.

If you have additional outstanding high-interest debt, make sure to take advantage of a 0% interest credit card balance transfer.

You could also consider refinancing with a lower interest personal loan from your bank or your local credit union.

Here’s a helpful article from my colleague Ben Broadwater on how to pay down your debt fast if you are seeking ideas. 

3. Invest in Your 401(k)

You can’t invest your $10,000 directly in a 401(k). But you can use it to supplement your paycheck while you deduct a sizable portion of your salary and put it in your company retirement account.

When you invest in your company’s 401(k), you make a regular contribution from each paycheck. It’s important to note that there are limits on how much you can contribute.

As of 2022, employees younger than 50 can contribute up to $20,500 per year. If you’re older than 50, you can contribute up to $27,000 per year, or an additional $6,500 in what is called a “catch-up” contribution. 

The idea being that the closer you are to retirement, the more you might need to catch up and save for your golden years.

Contributing to your 401(k) has positive tax consequences because the funds are withdrawn from your paycheck before they are taxed. As a result, you have a lower taxable income.

In addition, the money in your 401(k) is not taxed until you begin to withdraw it from the account in your retirement. 

Make sure you are taking advantage of your employer’s matching policy if it has one. This is basically free money! (Although, of course, you are working for it.) Many employers will match 50% or even 100% of your contribution up to 3% or 6% of your salary.

It would be silly to disregard this, and don’t be silly, okay?

4. Fund an IRA

Unlike your 401(k), you have more control over your IRA contributions. 

You can max out your IRA account with a contribution of $6,000 per year, or $7,000 per year if you are over age 50. 

Traditional and Roth IRAs work a bit different from each other. With a traditional IRA, you contribute pretax dollars and do not have to pay taxes before you withdraw the funds in retirement.

Roth IRAs are essentially the opposite of traditional IRAs in terms of taxation. With a Roth IRA, you pay taxes on your contribution up front. 

Your contribution is made in post-tax dollars. But later, when you withdraw the money in retirement, you don’t have to pay taxes on your withdrawal.

What you’ll want to consider is when you will likely be facing larger tax rates – now or later. If later, use a Roth IRA and pay those taxes at the lower rates now.

5. Peer-to-Peer Lending 

You know that time your buddy Paul or Frank asked you to borrow a few grand to start his local pineapple and pickle juice beer brewery, and you, knowing Paul or Frank, thought better of it?

Also, because ew?

Well, this is kind of like that, but much better.

Peer-to-peer (P2P) lending services are often online programs that match borrowers with lenders directly. 

When you lend money through a P2P service, you can pick the borrowers based on their creditworthiness and your own risk tolerance profile. Riskier loans will come with a higher yield for you but a higher likelihood that the borrower defaults.

Another plus for peer-to-peer lending is that you can diversify your risk across many borrowers instead of just loaning to one. This helps mitigate the high risk of default on the total investment that comes with loaning all of your money to one borrower.

With peer-to-peer lending, you can invest as little as $25 and get a significant return. Much more than you’d receive from a savings account, money market account or a certificate of deposit.

The hand of a robot typing on a laptop with stock charts on a screen | Investment U
The robots are coming, and they can pick ‘em up like Buffett. Or at least like a market index fund.

6. Invest $10,000 Automated Investing/Robo-Advisors

In the movies, it’s not always a great idea to play with robots. I’m looking at you, Terminator.

But a robo-advisor is essentially an automated investment advisor, and this can be very helpful. It’s all of the investing, but none of the humans! 

Robo-advisors do things automatically that humans traditionally had to do manually: rebalancing your portfolio to reinvest profits… making adjustments to maximize tax benefits… and the dishes. 

Just kidding on that last one. Do those yourself. 

And they do so at a low cost and with minimal balance requirements. This is a win-win. It’s essentially investing on autopilot.

The robo-advisors rely on computer algorithms and software to build and manage your portfolio. The fees associated with such accounts are usually in the range of 0.25% to 0.50% of your portfolio annually.

While some robo-advisors require a high minimum investment like $10,000, many require only $500 or less to invest. 

The portfolios are usually built using index funds and exchange-traded funds (ETFs). It is a passive style of investing so that you don’t have to think or do too much work. I’m not calling you lazy, I’m just saying, sometimes it’s nice.

Robo-advisor services you may want to check out include SoFi

An older man and his young doctor each give a thumbs up regarding HSA accounts | Investment U
Two thumbs-up for building an HSA account.

7. Invest in an HSA Account

Being healthy takes a lot of work. Believe me, I know. I went to the gym this morning. You know what else being healthy is? Expensive.

So, if you have a high-deductible health insurance plan, you may want to spend some of your investment funds on building an HSA account. 

An HSA, or health savings account, is a plan that helps you pay your medical expenses in a way that has positive tax consequences. It does so by reducing your taxable income.

In order to invest in an HSA, you must be in a high-deductible health insurance plan, which is a legal term defined by the government. The government sets maximums on how much you can contribute to your HSA, and you fund it with pretax dollars. 

You cannot generally pay insurance premiums with an HSA, but you can pay for expenses including deductibles, copays and coinsurance. There are other qualified medical expenses as well.

You not only fund your HSA with pretax dollars from your paycheck, but also can invest your HSA in mutual funds, stocks or other investments for additional returns on your money.

So go forth and get that sore throat checked, and continue to watch your money grow.

8. Fund a 529 Account

Going to college is one of the most expensive decisions I have ever made. Now, I knew I would make all the money I spent on my two philosophy degrees back many times over (jokes!). Still, I wish I had a better plan for that.

Well, now there is a plan for that. A 529 account is a college savings plan. You can use it to fund a college education at one of more than 6,000 qualified United States colleges and universities.

Not planning on going back to school? Great – but maybe your children are and you’d like to help them? No, then skip to No. 11. Otherwise, proceed.

Almost every state offers some kind of 529 plan, but you are allowed to go across state lines and fund a 529 account from a different state. 

There are two main types of 529 plans:

  1. College savings plans 
  2. Prepaid tuition plans.

College savings plans are similar to IRA accounts in that you are investing pretax dollars in mutual funds or other investments.

On the other hand, a prepaid 529 lets you actually prepay for the costs of an in-state college tuition. However, you may be able to convert the savings for use at an out-of-state or private college or university as well. 

Some states also have a 529 plan specifically to save for private colleges and universities. None, to my knowledge, are specifically for aspiring philosophers, and that’s probably a good thing.

9. Invest your $10,000 in Real Estate

Real estate can be another attractive investment for your spare $10,000. Of course, you could buy a property, flip it and rent it out to tenants. However, that’s not your only option. In fact, some options offer far less hands-on work.

REITs (pronounced “reets”) – or real estate investment trusts – present an attractive way to invest in real estate without getting your hands dirty. A REIT is essentially a corporation that owns and manages a portfolio of real estate properties and/or mortgages.

Shares of REITs trade on the market like a stock, so it becomes easy to buy into a portfolio of properties or mortgages. 

Some of the benefits of REITs include liquidity and diversification. Like stocks, REITs are relatively liquid investments that are easy to buy into and trade out of.

Because REITs own a portfolio of assets and not just a property or a single mortgage, it allows you to tap into the risk-reducing power of diversification as well.

REITs are also high-yielding investments – often they pay out higher dividends than stocks. 

And no pesky phone calls from tenants in the middle of the night.

Skyscrapers jutting up into the sky representing prime real estate to invest in | Investment U
This looks like some solid real estate right here.

10. Invest in Yourself!

Often, there is no better way to invest $10,000 than an investment in yourself. After all, I think you’re spectacular! 

But there are so many avenues available to you for self improvement. Some of these include…

  • Enrolling in a coaching program
  • Acquiring a designation or a certification
  • Going back to school
  • Taking online courses
  • Starting your own business
  • Starting a blog
  • Launching a podcast
  • Reselling products on Amazon
  • Traveling the world.

Life goes by quickly, and there’s no time like the present to spend your money on the things that will bring you true and lasting happiness. An investment in yourself, your knowledge and your well-being will always pay steady dividends.

11. Set Up a Taxable Investment Account

But here’s the big one. Setting up a taxable investment account. This is the one that can truly make you rich.

Ultimately, setting up a taxable investment account and investing your money in various assets is likely the most financially profitable avenue you can take over the long run. That’s because in the long term, the stock market outperforms all other investments and is a true builder of wealth.

With a taxable investment account, you have free reign to invest in whatever you want. In the old days, you needed a (likely sketchy) stock broker to execute trades for you.

But thanks to the magical power of the fabulous internet, that is no longer the case. You can invest with a low-cost discount online broker like Charles Schwab or even use the Robinhood app to invest your money with completely free trades.

There are two main ways you can handle your taxable brokerage account. The first is to passively manage it using any combination of mutual funds and ETFs. 

But actively managing your account and picking your own stocks has the power to be far more lucrative in the long term. And you aren’t limited to simply stocks. You can buy…

  • Stocks
  • Municipal bonds
  • A host of other available assets.

This way you can diversify your portfolio to achieve the right risk-reward profile for your risk tolerance and financial goals.

Play the game right, and you may find that you have doubled $10,000 quickly or even turned $10,000 into $100,000!

More Resources for How to Invest $10,000

But if you do decide to pick your own stocks, you definitely don’t have to go at it alone. There are plenty of resources out there, such as financial newsletters to help you decide how to invest $10,000 and pick stocks.

Most importantly, remember to do your research before investing. There are always risks with investing and returns are never guaranteed.

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