How to invest $10k? Here are 20 of the Best Ways

There are many ways to invest $10,000 right now. Some provide quick returns on those 10,000 dollars but come with higher risks. Others have more stable returns, but you won’t be flipping that 10k into 100k anytime soon.

So what is the best way to invest $10,000? You must consider two crucial factors: firstly, what is your investment horizon? And secondly, what is your risk appetite? Your answers to these two questions will tell you how to invest the $10k. Click here to read more about these concepts before choosing what to invest in!

In this article we give you 20 of the best ways you can invest $10,000.

Let’s begin!

All 20 investment options at a glance:

Invest in Exchange-Traded Funds (ETFs)

Investment Horizon: Long

Risk Profile: Medium

Potential return: Limited

ETFs are investments funds that track an index, which is typically collection of investments in a single asset class such as bonds, commodities and stocks. ETFs are bought and sold on stock exchanges in the same way stocks are traded.

ETFs make a great investment for $10k because they are an easy and quick way to diversify your ETF portfolio with a small sum. It’s also cheaper compared to index funds due to its lower expense ratio (cost of managing the fund).

However, ETFs incur trading commissions and fees. You get charged every time you sell and buy ETF shares. So, we’d recommend that you invest in ETFs over the long term to enjoy the most cost savings.

Assuming that your ETFs tracks a stock index, you’d want to hold this investment for a long time to ride out the ups and downs in the market. This makes it a long-term investment.

We believe that the ETFs carry medium risk thanks to its inbuilt diversification benefits.

Buy Index Funds

Investment Horizon: Long

Risk Profile: Medium

Potential return: Limited

Like ETFs, index funds are great investment options you to diversify your investment over large number of assets. This is ideal if you’re wondering what to do with $10k and don’t want to bet everything on a single asset. 

It’s also a perfect example of passive investing, and can save you the time and money spent on researching and buying individual stocks.

One advantage Index Funds have over ETFs is that you don’t incur trading commissions when you buy and sell shares in the fund. Dividends paid out from the Index Fund is also reinvested in the fund free of charge, unlike ETFs that disburse the dividends as cash.

Despite this advantage, you won’t get much benefit from it if you’re a long-term investor. This is because you won’t to be moving your funds around to be incurring trading commissions.

Buy Mutual Funds

Investment Horizon: Long

Risk Profile: Medium

Potential return: Limited

A mutual fund is where an investment manager collects money from many shareholders and invests that money in bonds, stocks and other securities.

The upside of mutual funds compared to passive collective investments like ETFs and index funds is that mutual funds typically employ some form of active management strategy. This is where the fund manager tries to outperform the market by investing more heavily in certain stocks.

This would require you to have faith that the fund manager can actually beat the market. We’ve seen overwhelming evidence that most active managers consistently fail to outperform a market benchmark. So the odds are against you!

Mutual Fund Fees

Another downside to mutual funds is that they typically charge more fees than ETFs and Index funds. These fees include:

  • a management fee – typically a couple of percentage points on the amount that the fund manages for you. They are usually higher than index funds because mutual funds exercise a more active management strategy compared to index funds that passively track an index.
  • Upfront fees – some mutual funds charge you for even buying a share in the mutual fund. This sets you back a few points even before you earn any money on your investment!
  • Redemption fees – earned money on your mutual fund investment? You might not be able to take your money out while you’re ahead. Some mutual funds lock up your fees for a certain time period. If you withdraw before the end of that period, you’ll have to pay a redemption fee.

Like index funds and ETFs, mutual funds are low-risk investments because your investments are diversified.

As with other investments in the market, mutual fund returns fluctuate in the short term but consistently increase over the long term. Therefore, mutual funds are best suited as a long-term investment.

To us, mutual funds are an old school concept. They’re quickly being replaced by ETFs and index funds. Given their high fees, would not recommend investing in mutual funds unless you find one that has a strong track record and promising investment strategy.  

Use a Robo-advisor

Investment Horizon: Long

Risk Profile: Varies

Potential return: Varies

Does picking investments make your head spin? What if there was a robot that could invest on your behalf? What if that robot could tailor its investment strategy to meet your investment objectives?

Luckily, that’s exactly what a robo-advisor does. A robo-advisor is an automated financial advisor who chooses and manages your investments based on the amount risk you can tolerate, financial resources and investment horizon. Sound familiar?

Because robo-advisors’ investments are automated, they charge lower management fees. For example, Betterment charges you 0.25% on your funds.

Human investment advisors typically charge 2.0%. On a $10,000 investment, that’s $175 in savings in the first year, and you could save even more as your investment grows!

How to choose between robo-advisors

Like human fund managers, robo-advisors vary in terms of performance. For example, Vanguard PAS saw annualized returns of 9.1% over the last two years, whereas Betterment had 8.6%.

That doesn’t mean you should choose Vanguard PAS over Betterment. You also need to consider other factors such as minimum deposit amounts. With $10,000, you’d be able to invest in Betterment, which has no account minimum; but you wouldn’t be able to invest with Vanguard PAS, which has a $50,000 account minimum.

Benefits of robo-advisors

Another consideration is: are robo-advisors even the best option when it comes to performance? The Financial Times found that UK robo-advisors failed to beat benchmarks last year.

So you might be wondering – why not just buy an ETF that provides diversification and tracks market performance closely?

Well, a robo-advisor can provide added benefits such as:

Portfolio Rebalancing

We haven’t touched on this much because $10k isn’t a lot to diversify with. However, as your capital grows, you’ll have the opportunity to invest in different asset classes. That’s where Asset Allocation becomes key. 

Asset Allocation refers to how much you should invest in different assets in order to manage your portfolio’s risk and reward. As your portfolio’s investments change in terms of risk and return, a robo advisor is able to change the amount you’re invested in different assets so that your portfolio’s risk and reward stays the same.

Tax-loss harvesting

Tax-loss harvesting is a complex strategy where your robo advisor sells your losing positions in order to realize losses that offset your capital gains taxes. Certainly not easy to do, considering that the IRS has many rules around tax-loss harvesting. So it might be better to leave this up to a robo-advisor!

Because robo-advisors invest in accordance with your investment horizon and risk appetite, its classification varies. In our opinion, a robo-advisor is the best approach to achieving your investment objectives in a hands-off way.

Pick your own Stocks

Investment Horizon: Long

Risk Profile: High

Potential return: High

Do you like the idea putting together information about the economy and analysing a business’ fundamentals to find an absolute gem of an investment?

Then investing in individual stocks might be for you. This is also known as active investing.

If you have a knack for identifying undervalued companies, then active investing might just make you rich. It’s also exhilarating to monitor a stock that you picked go up in value.

Drawbacks to investing in individual stocks

Are there any drawbacks to investing in individual stocks?

Yes – one drawback is that you have to put in A LOT more effort than if you were to invest passively. You’d need to read a company’s 10K, understand the industry that it’s in, keep up with the economy and more. It can be exhausting unless you truly have a passion for it!

Another drawback of investing in individual stocks is that you’ll likely be less diversified than if you invested in an index or across asset classes. One way to diversify is to invest in multiple companies in a specific way that reduces your portfolio’s risk.

One word of warning: studies have found that most active investors cannot even beat the index. That means that you’d be better off investing in an ETF or Index Fund if your goal is to maximize your wealth.

Invest in Bonds

Investment Horizon: Varies

Risk Profile: Medium

Potential return: Limited

Bonds are just another name for a loan or debt. When you invest in a bond, you are lending money to an entity like a company (corporate bonds) or the government (municipal bonds or treasury bonds). Like stocks, corporate bonds are typically traded on an exchange.

Bonds are commonly considered safer that stocks because you and the bond issuer enter into a contractual agreement, which outlines the interest rate and the maturity date. The issuer is contractually obliged to pay you a predetermined amount of money (known as a coupon) at specific dates over the life of the bond.

Also, the company is required to pay bond holders first before they distribute money to shareholders.

How to choose between Bonds

However, like stocks, not all bonds are created equal. Some bonds can be considered extremely risky. Here are the factors that make certain corporate bonds riskier than others:

Company fundamentals

A company that is doing well is more likely to be able to pay you the regular coupon payments. A company that is struggling to sell its products, has too many other financial obligations or is run inefficiently may find it harder to pay you back. In these cases, the bond would be considered riskier.

The bond’s ranking in the priority of claims

If a company is dissolved, the court will usually direct it to pay back money it owes to various stakeholders. A single company can issue multiple bonds to multiple groups of investors. So who should be paid first? That’s where the priority of claims comes in. Your bond agreement will typically define which debts the company must pay first before they pay you. If you’re lower down in the priority of claims (meaning you get paid after everyone else), then your bond’s risk is higher.

Credit rating agencies analyse these factors and encapsulate this in a single rating, known as the bond’s credit rating. A credit rating from Moody’s looks like this: Aa1 whereas a rating from S&P or Fitch might look like this: AA+. Like school grades, A is better (less risk) and D is terrible (the company is not able to pay). The more letters there are, the better – e.g. AAA is better than AA.

Bonds are also referred to as Fixed Income, because they offer a fixed coupon at regular intervals. This is in contrast to stocks which do not have a contractually defined dividend payout.

Start a Business

Investment Horizon: Long

Risk Profile: High

Potential return: High

Starting your own business is an exciting prospect and there are literally thousands that you can start with just $10,000.

Is $10,000 enough? To answer that question, you should create a business budget. The expenses for a brick and mortar business are typically high. The main financial aspects of a business include:

  • Capital Expenditures – these are the costs for the initial costs of buying and maintaining equipment.
  • Operating Costs – these are the business’ daily expenses including rent, electricity, wages etc. You should typically budget for a year’s worth of operating costs.

Also note that you don’t just have to start with $10,000. You can always raise funds from investors or borrow from a bank (though this may be difficult when you’re a startup).

A better idea might be to start an online business. It has both low capital expenditures (you need a good internet connection and a computer) and operating costs (you can often outsource a lot of the work to lower wage workers at the start).

Whether it’s a brick and mortar or online business, one thing that is inescapable is your time investment. Ask yourself if you really can afford to spend all that time or not.

Invest in someone else’s business

Investment Horizon: Long

Risk Profile: Varies

Potential return: High

Investing privately in someone else’s business can be a very profitable investment.

Two of the most common ways to invest are by buying:

  • Equity – you receive shares in the company
  • Debt – you loan money to the company, and they repay the loan over time.
  • Convertible Debt – this is just like a normal loan. However, it carries an option for the loan to be converted to equity. Depending on your agreement, the buyer or the seller will choose when the loan will be converted. This is one of the more popular ways to invest because the business owner gets to keep their equity through a debt investment, but the investor can get equity in the company if the owner fails to make their coupon payments.

Unlike starting your own business, investing in someone else’s business does not need to be risky. Established businesses need to raise funds to grow all the time. The vehicle in which you choose to invest (Equity, Debt or Convertible Debt) differ in their riskiness too. Equity is the most risky, whereas (Converitble) Debt is less risky due to the regular payments.

Questions to ask before investing

What are the prospects of the company? Do they need the funds to get through a rough patch? Is business so good that they need to invest in more capital and labor? Sometimes a business owner may just want to exit part of their position in the company and you’ll just be buying over their share of the company.

To answer these questions, you’d typically need to look at the company’s financial statements. For a small private company this is usually tough because the company may not have all its financial statements in place. You might have to hire an accountant to draw up these financial statements before you’re comfortable investing.

In the absence of financial statements, you might assess how the company will do by looking at its Management. This is what venture capitalists do when a company doesn’t have much of a track record.

Your investment horizon depends a lot on how you negotiate the investment. As we mentioned earlier, the risk profile of the investment varies according to what company you invest in and what type of investment you take.

“Write” a Book

Investment Horizon: Short

Risk Profile: High

Potential return: Limited

Publishing a book is a great way to earn passive income. Like any product, you can continue to earn money if you set up marketing channels to sell your book long after you’ve written it.

How is that investing though, you might ask? Well, you don’t necessarily have to write the book yourself. There are plenty of writers online willing to ghost write for you. We found a writer offering her services for $500 per 7,000 words. According to Wikipedia, a typical fiction book ranges from 60,000 to 100,000 words. So that’ll set you back about $7,000.

You can then invest the rest into a designer for your cover and a publicist.

It’ll take about a month to get the book done, and about a year to make your money back. This puts it in the short-term investments bucket.

Like starting your own business though, success is far from guaranteed. In fact, we’d say that publishing your own book is a tad riskier because you’re pouring thousands of dollars into developing a single product. So we’d only recommend this if you’re really passionate about having a book published.

Of course, you can increase the odds of success by doing proper research into what’s popular, as well as creating a marketing funnel to sell the crap out of your books. But that’s beyond the scope of this article!

Blogging and Affiliate Marketing

Investment Horizon: Long

Risk Profile: Low

Potential return: High

We’ve put this in here because blogging is something that we’re deeply familiar with. Before you pooh pooh the idea, did you know that there are people making millions of dollars a year from blogging?

One of the easiest ways to make money from blogging is through affiliate marketing. That’s where you promote products and services within your content. In exchange, you typically get paid a commission when a person you refer buys the product.

The range of commissions are huge – from a few cents to hundreds of dollars. If you have a sizable following though, even small commissions will start to add up.

To get a blog up and running is the easy part, you can get your website up and running today if you wanted. It’s extremely cheap too – you can host your site for just $3.95 a month with Siteground (our favorite hosting service). Everything else (like a WordPress, and software) is practically free if you choose.

How to get a quick return on your $10,000

So where does the $10,000 investment come in? While you could do everything for free yourself, it does take time to grow your blog. After all, how many articles can you write a day? How many friends can you share your blog with? At some point, you’d be looking to invest some money to really build your following quickly.

A monetary investment is like steroids for your blog. You can pay for people to write your content. This gives your readers more to consume and gives you more affiliate marketing opportunities.  You can also invest in advertising. $10k is plenty of dough to attract thousands of new readers to your blog.

We see blogging as a long-term investment because you’ll want to hold your blog for the long term to realize all its income. Unless of course, you choose to sell. 

Based on our experience, blogging is also very low risk because you have complete control over when and how much to invest. You’re able to invest a small amount, learn what works and decide your next steps from there. A blog also costs next to nothing to operate, so you won’t be burning cash if you choose to take a break for a while (unlike a brick and mortar business where you pay rent and hold inventory.)

Invest in Cryptocurrencies

Investment Horizon: Long

Risk Profile: High

Potential return: High

Crypto gets a bad rep sometimes. Bitcoin crashed spectacularly in early 2018, causing some investors to lose everything. At the same time, it’s made some investors millionaires overnight.

For now though, crypto is still a volatile investment, and a moonshot.

However, most experts agree that the potential for block chain technology and cryptocurrencies exists. So ask yourself, are you willing to risk losing all your capital on the chance that you might become a multimillionaire?

If you’d like to invest in the idea of crypto rather than betting on any one particular currency, then you can invest in multiple cryptocurrencies rather than just one. Crypto exchanges commonly see multiple currencies rise and fall together. This is a good way to limit your risk and diversify your investment.

You don’t have to just invest in popular cryptocurrencies too. Initial Coin Offerings (ICOs) have become a popular a way for startups to raise funds from investors.

Because of the volatile nature of crypto investing, you’d typically only go into this if you have a long term investment horizon and high risk appetite.

Invest in Real Estate

Investment Horizon: Long

Risk Profile: Low

Potential return: High

Can you really buy real estate for just $10k? The answer is a resounding Yes!

You’d be amazed how cheap real estate investing can be. You’ll need to be on the look out for really good deals on fixer uppers, foreclosures or from sellers that are desperate to sell.

I absolutely love this interview with Graham Stephan who bought his first investment property for just over $60,000!

With a Federal Housing Administration (FHA) loan, you only need to come up with 3.5% of the home’s value as a down payment. Even after considering the upfront insurance premiums and closing costs, $10k is still more than enough for you to afford a $400,000 duplex.

House Hacking

A common strategy that takes advantage of the FHA loan is House Hacking. This is where you buy a multi-unit property using an FHA loan. Getting an FHA loan requires that you stay in the property. So you’ll stay in one of the units while renting out the others.

The income from the other units will help with your loan repayments and build equity in the property. You can then sell the property to invest in new projects, thus creating your new real estate empire!

Passive methods of investing in Real Estate

If all that sound like too much work for you, then you can always invest in real estate via passive methods. Real Estate Investment Trusts (REITs) are trusts that invest in real estate. You can buy a share of these REITs over an exchange just like you would with company shares. Rental income is disbursed to investors as dividends.

Another passive method is to invest with a Real Estate Syndicate. This is where a syndicator (an active manager) acquires and manages properties on the behalf of a group of investors. Like a REIT, any income that the syndicate earns is paid out to investors.

Peer to Peer Lending

Investment Horizon: Short

Risk Profile: Medium

Potential return: Limited

Earning interest from lending people money is a concept that is as old as money itself. That’s essentially what bonds are. Heck, it’s why you earn money on your savings account (the bank essentially borrows your money).

What makes peer to peer lending unique is that it’s private. You basically lend money to someone on a platform like Lending Club, and that’s a private agreement between the two of you.

Here are some benefits of peer to peer lending:

  • You can often expect a decent interest rate on your money
  • You don’t have to fund the entire loan amount. This allows you to diversify amongst different borrowers. According to Lending Club, 99% of portfolios that have over 100 investment notes are profitable.
  • With a low barrier to entry, you can choose how much to invest according to your risk appetite.
  • You can choose to lend money for businesses and causes that you believe in, which is an added perk.

Unlike buying bonds (that have credit ratings), the peer to peer lending world is largely opaque. That means that you don’t have a lot of information on the people that you’re lending to.

However, reputable platforms like Lending Club have policies that help lenders. For example, they only sign up borrowers who have a credit score of 600 or more. This means that the people you’re lending to have good credit and are likely to be able to pay you back.

Platforms like Lending Club have a minimum repayment term of 36 months. This makes it a short-term investment. Because these are private loan arrangements, we’ve classified this investment as medium risk.

Our advice to put a little bit into peer to peer lending and see how you feel about it. At a minimum of $25 per investment note, you’d be able to invest in 100 notes (what Lending Club considers very diversified) at $2,500.

Put your money in your 401(k)

Investment Horizon: Long

Risk Profile: Varies

Potential return: High

Thanks to matching employer contributions, you virtually double your money when you contribute to your 401(k) plan. If you’ve not been able to meet the minimum amount required for employer matching, you might be able to afford it now with your $10,000 buffer.

What are the benefits of upping your 401k contributions? Well:

  • It lowers your taxable income. Contributions to your 401k aren’t taxed. So the more of your salary that you put in, the more you save on taxes.
  • You aren’t taxed until you withdraw from the account. This means that you can buy and sell investments in your 401k account without incurring taxes. This means you have more money that can compound over time.
  • You defer your taxes till a later date. Because you’re only taxed when you withdraw, you can plan your withdrawals such that you pay less tax. For example, you might spread your withdrawals out over a few years, and only in years that you fall in a lower tax bracket (typically when you stop working.)

Because you want to delay paying taxes on your 401k withdrawals, you’ll want to hold your money in the account for as long as possible. So we’ve classified this as a long term investment.

And because you can invest your 401k funds into just about anything, the risk profile for this investment varies according to what you invest in.

We’d typically recommend using the $10k to increase your regular contributions on the 401k so that you earn the full matching contribution from your employer. However if you’ve already hit that amount and you have already paid taxes on the $10k, then you might want to consider a Roth IRA.

Open a Roth IRA account

Investment Horizon: Long

Risk Profile: Varies

Potential return: High

If you’ve already paid income tax on the $10k, then it will make sense for you to contribute to a Roth IRA account instead.

This is because the Roth IRA is only funded with post-tax dollars. You don’t pay any taxes upon withdrawal. You’ve already paid taxes on your initial $10k, so why put it in a 401k for example, if you’re just going to get taxed again?

The Roth IRA is suitable for young people who expect to be in a higher tax bracket in the future. That’s because you are taxed now at your lower tax rate rather than when you withdraw when you’re in the higher tax bracket.

So if you’re just starting out in your career, then putting the $10k in a Roth IRA is a great idea.

You’ll probably want to keep your capital growing using your Roth IRA and you’ll be investing in assets like equities and bonds. So we’ve classified this as a long term investment.

Because you get to choose what to invest in, this investment varies in terms of risk.

Invest in High-Yield Savings Account

Investment Horizon: Short

Risk Profile: Low

Potential return: Low

A high-interest savings account offers higher interest than standard savings accounts.

To earn the high interest though, you will need to meet certain conditions like keeping a certain balance in the account (though this is usually low), and crediting part of your salary into the account etc.

These accounts are great for investors with low risk appetite as their interest rates are usually stable and there is virtually no risk of your savings disappearing.

Unlike similar investment vehicles like CDs, Savings Accounts are also very liquid – you can withdraw your money at any time. Therefore, putting your money in a high interest saving account can be considered a short term investment.

Invest in Money Market Accounts

Investment Horizon: Short

Risk Profile: Low

Potential return: Low

A money market account is like a high yield savings account. However, it is able to provide higher returns because it invests in certificates of deposit (CDs), government bonds and commercial debt.

If your local bank offers money market accounts, take advantage of this and put your money in one because they are low risk and they are tax exempt. Money market accounts invest in government securities, which is why they are tax efficient. However, the dividends are not tax exempt.  

Although money market accounts do not yield high returns like bond or stock investing, investing in a money market account is a great way of saving money for emergencies.

Invest in Certificate of Deposit

Investment Horizon: Varies

Risk Profile: Low

Potential return: Low

A certificate of deposit (CD) is a type of savings account issued by a bank where you must make a deposit a specific amount of time. This period could be as short as 3 months to as long as 10 years.

The deposit earns a fixed interest rate and is only paid to you with the principle upon the CD’s maturity date (a predetermined date where the funds will be returned to you). There are no costs associated with a CD. However, you will be penalized for withdrawing your money before the maturity date.

Given that CDs have a fixed maturity date, this investment is perfect if you’re planning to use the funds at a particular time (e.g. paying for college education, mortgage balloon payment etc. have definite dates where funds will be needed.)

Typically, long-term CDs have higher rates of return than short-term CDs to compensate you for the added risk you’re taking by locking up your capital for longer (though that risk is still considerably low). Therefore, if you’re looking to get the highest rates of return, you should invest in a long-term CD.

What if you want the higher return from long term CDs while maintaining some flexibility to withdraw your funds in case of an emergency? Well, a CD laddering strategy let’s you have your cake and eat it too. In a CD ladder, you can spread your investment over a series of CDs that have different maturity dates. You can get your funds back quickly through your short-term CDs and enjoy the high interest rates from your long-term CDs.

Given that CDs offer such a low rate of return and have such strict rules on when you can withdraw, we’d recommend only using it for a short-term investment. If you’re planning to invest for 10 years, you’d be better off investing your $10k in a long-term investment that carries higher returns, like an ETF.

CDs in America are insured by the Federal Deposit Insurance Corporation for up to $250,000. $10,000 is well within that limit, you can be confident that you’ll get your money back. This makes the investment very low risk.

Pay off your Debt

Investment Horizon: Long

Risk Profile: Low

Potential return: High

If you have outstanding debt, then paying it off could be a great low risk investment.

Think about how much you’re paying in interest on your mortgage for example: is it something like 5% per year? By paying down your mortgage, you’re saving on that 5% annually. And you know what they say, a dollar saved is a dollar earned.

To really drive this point home – it would be equivalent to you investing in an asset (say a bond) earning 5% a year and using that return to pay off your mortgage interest.

The added benefit of paying down your debt directly though, is that there will be fewer moving parts. You don’t have to worry about your investment going down in value for example. That means a better night’s rest!  

This investment becomes even more appealing if you have:

  • A higher interest rate (e.g. credit card debt)
  • A variable interest rate – because you don’t know if the interest on your loan will rise
  • A credit score that you’re trying to improve – paying off outstanding debt can improve your credit score. Certainly a nice added bonus.

One thing you should note though: paying off loans like a mortgage could incur a prepayment penalty. This is typically a couple of percentage point on the balance of you loan – so check your loan documents!

We’d recommend this investment strategy if you have high interest loans like credit card debt. Because you’re only realizing the benefits (lower interest rate) over the life of the loan, we’ve classified this as a long-term investment.  

Because your savings are pretty much guaranteed, we’ve labelled this a low risk investment.

Get a Certification

Investment Horizon: Long

Risk Profile: Low

Potential return: High

This isn’t investing in a traditional sense, but it’s one of the best ways to grow your wealth. This study by the Financial Times showed that people who earned their MBA usually doubled their salaries.

Now $10k might not get you into most MBA programmes, but the idea stands. For that price, you can enrol for professional certifications like the CFA or CPA exams if you’re a finance professional.

You could also diversify your skillsets by enrolling in trade school or community college. You’ll be able to use your new skills to start a small business or do freelancing on the side.

Alternatively, you could enrol in online courses. Sites such as Udemy and Coursera offer high quality courses for just $20 to $50 per course. It’s an affordable way to get your feet wet in a new field. I’ve taken a couple of Javascript courses and came away with a solid new skill set.   

Two Factors that Determine How to Invest $10k

In our list of the 20 best ways to invest $10k, we have classified investments by Investment Horizon and Risk Profile. These are two crucial factors that will help you determine what to invest in. We’ll use an example to explain these concepts.

Consider two investors, Jack and Jill who both have $10,000 to invest:

Jack is 45 years old. He doesn’t have a high income, so he had to scrimp and save to earn that $10,000. He plans for this $10,000 to help fund his teenage daughter’s college education in a few years. With his salary, it’s unlikely that he’d be able to save another $10,000 if his investment goes south.

Jill is a hot shot 20-something year old banker. She makes over $100,000 a year and just got a $10,000 bonus. She plans to use the $10,000 to fund her retirement. However, she’s willing to risk losing the entire $10,000 on an investment that could make her extremely wealthy if the investment goes right. After all, she could put aside another $10,000 easily. 

As you can see, Jack and Jill both have the same amount of money to invest. But the best way to invest $10,000 is different for each of them because of their circumstances.

What are your circumstances? There are so many factors that affect how you should invest $10,000 – too many to consider them all. So here’s a simple way to guide your thinking. Consider just two factors: Investment Horizon and Risk Appetite.

Investment Horizon

Time frame refers to how long you’re holding an investment for. How long you invest for depends on your investment objectives.

Short Term Investment Investments

A short investment horizon usually refers to a time frame of 3 years or less. You have a short investment horizon if you need the funds available in the next few years. 

In the example above, Jack’s investment objective is to fund his daughter’s college education in a few years. So, he should invest in invest in short-term investments that are liquid (you can exit them quickly). Investments like money market funds and short-term bonds fit the bill because there is usually a ready market to buy back the assets.

Long Term Investment Investments

A long investment horizon usually refers to a time frame of 10 years or more.

In the example above, Jill’s investment objective is to fund a retirement that will be another 30 years in the making. In this case, she has a long investment horizon and can invest in long term investments like real estate or index funds.

Risk Appetite

Your risk appetite refers to how much risk you’re able or willing to take. Again, this depends on your investment objectives. There is also an interplay between the amount of risk you can take and your time horizon. We’ll illustrate these below:

Low-risk Investments

Low-risk investments refer to assets whose values remain stable. You might expect a low-risk investment to return 3% year after year, with little variation each year.

In our example above, Jack needs to preserve his capital in order to have enough funds available when it’s time to send his daughter to college.

Therefore, it’s better for Jack to invest in low-risk investments like Certificates of Deposit (CDs) because it is unlikely that his investments would have fallen in value. He can rest assured that he’ll have the funds ready when they’re due.

High-risk Investments

High-risk investments refer to assets whose values fluctuate in the near term. For example, you might own a stock that is up 5% one year and down 5% the next. This is considered ‘risky’ because you might need to pull out your funds when your investments are down.

To compensate for this risk, high-risk investments are usually cheaper. This means that you can expect higher returns over time.

In the example above, Jill should explore high-risk investments for three reasons:

  • She can take higher risk because she has a high income that she can rely on to supplement her retirement funds.
  • She wants to take higher risk if it means that she can earn more money in the end.
  • She has a long time horizon, meaning that she can ride out the short term fluctuations in asset values and participate in the long term trend.

Now that you are armed with this new knowledge, take some time away from reading this article. Determine what your investment objectives are. From there determine your investment time horizon and risk appetite. Then use our list of best ways to invest $10k to pick out the right investment strategy for you.

MillionaireMan
 

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