How to invest $20,000? Here are 20 best ways.
Making an investment is usually an endeavor that requires good planning and of course, ample research, whether you are investing $100 or $20,000.
But before you make an investment, there are two things that need consideration.
- Time-frame – are you looking to make a long-term investment or a short-term investment?
- Risk appetite – how much risk are you willing to take.
These two factors are crucial to making an informed decision about your investment venture. First, you need to ask yourself, do you want to make a short-term or a long-term investment?
To better understand these terms, let’s first define them.
A long-term investment is an investment that you want to hold for 10 years or more. Some examples of long-term investments include index funds, stocks, and real estate.
The short-term investment is an investment that you want to hold for 1 year or less. Some examples include short-term bonds and money market funds.
The second question you need to ask yourself is just how much risk are you willing to take? When we talk about risk, we are talking about high-risk and low-risk investments.
Low-risk investments are attractive because there is a small chance that the investor will lose money. High-risk investments, on the other hand, are more appealing because they yield higher rewards than low-risk investments.
So if you are looking to invest $20,000, you need to determine your goals for making the investment. This is what is called goal-based investing. This type of investing mainly focuses on meeting your personal goals or lifestyle goals, such as purchasing a home or saving for retirement.
Once you determine what your goals are, the next step is to determine what type of investment you want to make. If you are not sure where to start, this guide provides some great ideas on how you can invest $20,000.
20 brilliant ways to invest $20,000
Invest in High-Interest Savings Account
A high-interest savings account differs from a standard savings accounts in that it’s structured to provide the saver with high returns. Although the returns are quite low compared to bond or stock investing, it still does provide a financial safety net in case of an emergency.
A number of advantages that come with high-interest savings accounts include:
- Low monthly fees and charges
- High-interest rates
- Easy access to funds
- No minimum balance
This is a good investment option when you don’t have much money to invest. Plus, it’s a great way to invest money for retirement or emergencies. Generally, investing in a high-interest savings account is low risk because the costs associated with this investment are low.
Invest in Exchange-Traded Funds
ETFs are investments funds that are bought and sold on stock exchanges similarly to the way stocks are traded. They are basically a collection of bonds, commodities and stocks.
ETFs are popular and for these reasons:
- They have lower costs compared to other investment products because most of them are passively managed
- They have low accounting, marketing, and distribution expenses
- They are low commission fees associated with ETFs
- You can easily diversify your ETF portfolio
- They are tax efficient
There are many other varying reasons why you should invest your $20k on an exchange-traded fund. But the main reason to put your money in an ETF is because they have a low expense ratio and are highly liquid. The fact that they work in the same way as stocks do makes them a great option for a short-term investment.
Invest in Index Funds
Index funds are great investment options because they allow you to hold a large number of stocks in one fund. Rather than buying individual stocks that could cost you a lot, you can own a share of a large amount of stocks.
The most common way to invest in an index fund is through an ETF because they are bought and sold like stocks. They also have lower costs since they aren’t actively managed. Generally, because the costs associated with these funds are low, the risk is also low. You should also know that these funds are tax efficient.
With $20k, you can comfortably invest in an index fund without needing to worry about high costs. The other thing is that Index funds are long-term oriented investments, if you want to maximize on returns then consider investing long-term.
Start a Business
There are literally thousands of business ideas you can start with $20,000, but you need to do your research and create a good plan, if you are to succeed.
The other thing is, you need to budget your capital wisely. Divide up the money such that you have enough to cover your startup costs as well as your operational costs. Online businesses, for example, have low operating costs. Mainly a good internet connection, a computer and a business website are all you need. All these is not likely to cost you more than $10,000.
Other businesses, such as a coffee shop or boutique; however, require quite a bit of cash to operate on a daily basis. In this case, you are looking at paying rent, electricity, employees, stock and a number of other expenses each month. With such a business, the startup cost may be low, but the operational costs may be high.
Therefore, with a budget of $20,000, starting an online business may better than starting a brick-and-mortar business. Because you don’t run the risk of losing all or most of your money should the business flop.
Get a Certification
Some people frown at the idea of going back to college, but you can never go wrong by investing in an education. Going to college can help you acquire new skills and thus improving your chances of getting a better paying job. The amount you would need to part with, however, may depend on the college and the course you intend to take.
Alternatively, you can enroll in online courses. Sites such as Udemy and Coursera offer thousands of courses on many varying topics at very affordable rates. For instance, Udemy charges anywhere in the range of $20 to $50 per course.
The only risk that comes with investing in an education is when you end up doing nothing with your certification. You would have wasted your time and money. But on the whole, this is a good long-term investment because you are acquiring new skills that can get you a better paying job in future.
Invest in Cryptocurrencies
Cryptocurrency trading has become the in-thing. People are making tons of money trading high- value cryptocurrencies like Bitcoin and Ethereum.
But before you go buying cryptos make sure you do your research first. You don’t’ want to end up buying a bunch of cryptos that are on a downward trend. For this type of investment, invest short-term instead of long-term because cryptocurrencies are very volatile and high-risk.
Invest in Real Estate
It’s highly unlikely that you will be able to purchase a property with $20k. But you can purchase a small portion of a large real estate investment through a real estate platform such as Fundrise. This is a great way to invest your money long-term without having to do any research or take any risks.
Invest in Individual Stocks
Investing in individual stocks is a great way to make loads of money; however, without doing proper research, you are definitely going to set yourself up for a fall.
If you are not confident about stock trading, you can hire a broker or brokerage firm to help you out. But find one whose fees are relatively low.
However, keep in mind that investing in stocks is more profitable in the long-term than in the short-term because stocks pay dividends. If you accumulate your dividends or reinvest them over a period of time, your money will grow significantly.
Invest in Money Market Accounts
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.
Write a Book
Now you don’t necessarily need to write the book yourself especially if you don’t know how. You can hire a writer to write the book for you and a designer to design the cover. This shouldn’t cost you more than $10k. With the remaining money, you can hire a publicist.
Keep in mind that you can do all these and still save some money.
Join a Lending Club
You can join a Lending Club and lend your money to other people at an interest. The advantage of becoming a lender is that you can spread out your investments and thus reduce your overall risk. Furthermore, you can lend out as much or as little as you want. It is advisable, however, to start small and if that works out well, then you can increase the loan amounts with time.
Becoming a lender is an excellent way to grow your money, although there are risks involved including borrowers not repaying their loans. Although it is a high-risk investment, you can grow your money quickly if none of the borrowers default on the loan.
Put your money in your 401(k)
One of the easiest ways to invest your hard earned money is to put it in a 401(k). Although it’s a retirement plan, it’s a good way to save money for your future.
There are no risks involved. All funds deposited in your 401(k) account are tax exempt and you only get taxed when you withdraw the funds before your retirement.
Pay off your debts
If you have $20k and you are thinking of using it to make an investment, first make sure that you have no debts. If you have some debts, clear them first. It is the only you can be guaranteed an ROI.
- Invest in a Robo-advisor
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 timeline of your investment.
Robo-advisors are a much better option than hiring a person to handle your investment for you because they are more affordable. You don’t have to worry about paying high fee charges, which makes them low risk.
Open a Roth IRA account
Who wouldn’t jump at the opportunity to earn tax-free money? That is what you get with a Roth IRA account. All you need to do is open an online investing account and watch your money grow and then withdraw it at retirement.
Invest in a Blog
I am sure you have heard many people say that they make hundreds of dollars each month through blogging and that is true. In fact, there are people making millions each year blogging alone.
With $20k, you can start up a blog and monetize it. You can even hire writers who can churn several pieces of high-quality content for you each week. For your blog to succeed, you need to create content that catches the attention of your readers. The more people you draw to your website, the more money you can make especially if you are selling a product.
Invest in someone else’s business
If you have $20k to invest, but you are reluctant to start your own business, why not invest in someone else’s business. You can own a share of the company without necessarily playing an active role in the decision-making, daily running or management of the company.
With such an investment, the amount of risk you take will depend on the type of business you are investing in. A business may offer high returns, but the risks may be too great. Avoid investing in high-risk businesses especially when you know you can’t afford to lose the money.
Invest in Certificate of Deposit
A certificate of deposit (CD) is a type of savings account issued by a bank on the agreement that you make a certain deposit and let the deposit sit there for a specific period of time. This period could be 3 months, 1 year or even 5 years.
The deposit earns a fixed interest rate, which means the longer the money remains in the account, the more money you will accumulate. There are no costs associated with a CD. However, you will be penalized for withdrawing your money before the maturity date.
Typically, long-term certificate of deposits have higher returns than short-term CD accounts. So if you are looking for a good long-term investment, invest in a CD.
Invest in Mutual Funds
A mutual fund is a professionally managed investment plan that collects money from many shareholders and invests that money in bonds, stocks and other securities. Each shareholder is required to pay a small amount of money, which goes towards the management of the fund.
Mutual funds are low-risk investments because the risk is spread out. However, to make good returns, you need to make a long-term investment.
Invest in Bonds
There is no easier way to make money than to loan it to a company, government, or state at an interest rate. Bonds are investment vehicles used to raise money to finance numerous projects.
When you buy a bond, you and the issuer enter into a contract agreement, which outlines the interest rate and the maturity date. Some bonds are riskier than others, so the type of bond you invest in will depend on your risk tolerance.
But generally, if you are looking to get good returns, it’s advisable to invest in long-term bonds.
A note of advice
There are plenty of ways you can build your wealth. Even with little capital, you can start a business that may later turn into a multimillion-dollar company. As long as you have a vision, and a plan, no amount of money is too little to invest.