Let me start by saying that if you’ve got enough money socked away that you’re wondering how to invest $50,000, congratulations! Having that kind of cash lying around is no small accomplishment.
Even if the money was gifted to you, we’re extending kudos to you. You didn’t go out and buy a brand new car or take a luxury vacation.
So, what should you do with your fifty grand if you’re looking to grow it? The first thing to do is look at your overall financial situation and make sure you have your basics covered. Start with paying off high interest debt and fully funding your emergency fund. Then start maxing out your retirement accounts for the year. After that, look into taxable investment accounts and real estate.
Table of Contents
- How to Invest $50,000 Your Way
- Ideas for Investing $50,000
- 1. Pay Off High Interest Debt
- 2. Increase Emergency Savings
- 3. Max Your Roth IRA Contributions
- 4. Sock it into Your 401k
- 5. Add to a 529 Plan
- 6. Invest in a Taxable Brokerage Account
- 7. Invest in Real Estate
How to Invest $50,000 Your Way
“Investing” means different things to different people. And the type of investment(s) you choose to put your $50k in might be different from the choices your friends and family might make.
When it comes to investing large amounts of cash, there are a couple of things you should consider.
Consider Your Risk Tolerance Level
If you don’t already know what your risk tolerance level is, find out by taking a risk tolerance quiz. Then choose investments that make you most comfortable by lining them up with your risk tolerance level.
For instance, those with a lower risk tolerance (hello, me) will probably feel more comfortable sticking with less risky investments, such as keeping a big chunk in savings, or investments with a long-standing history of steady profit.
Conversely, those with higher risk tolerance levels may feel more comfortable investing in riskier or alternative investments, such as cryptocurrency.
Or maybe you’re right in the middle of the risk level chart and will choose to put some of the money in a variety of investments with varying risk levels.
The goal is to know your tolerance level and make investment choices accordingly.
Set a Timeline for the Investment
Setting a timeline for your investment choices is important too. Decide whether you want to invest in short-term investments (under five years) or longer term investments.
Different investments will be appropriate for different timelines. If you are planning on using the money as a downpayment on a home in the next few years you’ll want to keep the money safe even if it means accepting lower potential returns.
However, if you are saving the whole thing for retirement in 30 years then you’ll be able to assume more risk (and earn potentially higher returns)
You may choose to take a blended approach, putting a percentage of the money in short-term investments and the rest in longer term options. Just make sure you have a plan.
The goal should be to invest in the way that works best for you/your family.
Ideas for Investing $50,000
As we share some ideas for investing your $50k, we’re going to take a “ladder” approach with a focus on smart personal finance steps as a whole.
We’ll order them in a “first to last” type fashion. For example, if you’ve already completed idea number one, you can move on down the line to choose from the other suggestions here. Of course, your real-life may mean making a few adjustments to the exact order, that’s totally fine.
1. Pay Off High Interest Debt
If you’ve got credit card debt, nagging student loans, or other high interest debt, consider paying that off first. Focusing on debt payoff first comes with two benefits.
Not only will you “earn” an interest rate akin to that of the debt you’re paying off (I’m talking to you, 15.99% credit card), you’ll free yourself from the burden of the monthly payment that’s tied to that high interest debt.
And having fewer payments will lighten your budget up for when you get ready to retire, whether that’s early or right on time. Or it can free up money to put toward other financial goals you may have.
As you decide how to pay off your debt, start by making a plan to determine which debts you should pay in what order. Then, after you’ve made a plan, start whittling the debts away.
You may want to hold off on paying down or paying off your mortgage, especially if the interest rate is low, becauses it’s reasonable to assume that the growth on your investments will surpass the rate you’re paying on your mortgage. But of course, that’s your call. (And there are never any guarantees when it comes to investing.)
The main goal is to get rid of debts with interest rates that outweigh what you can earn via investing ventures with an average level of risk, such as an S&P 500 mimicking mutual fund.
2. Increase Emergency Savings
After you’ve successfully tackled your high interest debt, consider using some of your $50k to beef up your emergency savings account.
Financial experts recommend your emergency savings account have three to six months’ worth of expenses in it, at a minimum.
If you really crave a plush financial safety net, or if you fall into one of the categories below, you may want to consider an emergency fund with 12 months’ worth of expenses:
- You’re the sole income earner for a partner and kids
- You have a job with commission-based pay
- You have a job in a volatile industry
- The company you work for is struggling
- You own your own business
There may be other factors that warrant a 12-month emergency fund too, such as health conditions. Consider what factors in your life might influence your ability to earn income and make your decision on the amount from there.
Check out our article on how much to save in your emergency fund for more tips.
3. Max Your Roth IRA Contributions
After you’ve completed recommended steps one and two, consider maxing out your Roth IRA contributions for the year. If you qualify to open one, the Roth IRA is a fantastic retirement vehicle for a number of reasons.
Here’s a brief rundown on important features of the Roth IRA:
- Contributions are not tax deductible
- Earnings are not taxable
- Maximum contribution of $6,000 per year/$7,000 per year if you’re 50 or older
- Withdrawals of contributions are always tax free and penalty free
- Earnings and converted balances are subject to IRS withdrawal rules
If you’re withdrawing earnings on your Roth IRA, you need to meet certain criteria. First, at least five years need to have passed since your first Roth IRA contribution Second, you need to be at least 59 and ½ years old.
However, if you don’t meet the age requirement, there are qualified reasons for early withdrawal. Note too that there are income requirements you must meet before you can contribute to a Roth IRA, although there are ways around Roth IRA income requirements.
If you can find a way to qualify for one, be sure to max it out with a portion of your $50k.
4. Sock it into Your 401k
If you haven’t already, consider putting some of your $50,000 into your 401k. This is especially smart if you haven’t maxed out your employer’s 401k match program.
If your employer offers a 401k payroll contribution match, sign up to take full advantage of that. If you need that money in your monthly budget, then use the equivalent amount of money you contribute, transferring it from your $50k to live on for the year.
401k contribution limits for 2021 are $19,500 per year, with an additional $6,000 available for those age 50 or over.
Consider an HSA Deposit if You Qualify
If you have a high deductible health insurance plan, consider socking some of the money in an HSA too. You can contribute up to $3,600 per year to a single account and $7,200 per year to a family account (as of 2021).
Those age 55 and older can contribute an additional $1,000 per year to an HSA account. Contributions are pre-tax or tax deductible, earnings grow tax free, and they are eligible for withdrawal for qualified medical expenses.
Bonus: Your HSA account can be used as a retirement account once you turn 65. The 20% penalty for using funds for non-qualified medical expenses goes away once you turn 65.
5. Add to a 529 Plan
If you’ve invested as you wish in the areas mentioned so far, consider contributing to a 529 plan if you or your children are college bound.
Earnings from 529 plan contributions are tax exempt on the federal level, and often on the state level too. Contribution limits on 529 plans are typically quite high, and are set by the state that backs the plan.
You can contribute as much as you’d like as long as your contributions don’t exceed the limit set by the plan you’re enrolled in, and the beneficiary’s qualified education expenses aren’t exceeded by the amount of money in the account.
If they are, you can always transfer the monies to a 529 plan for a different beneficiary too. Bonus: You can contribute to any state’s 529 plan, regardless of which state you live in.
The state the beneficiary goes to college in doesn’t matter either. So research plans carefully and choose the one that best fits your investment goals.
6. Invest in a Taxable Brokerage Account
After you’ve maxed out in any applicable avenues mentioned above, it’s time to consider investing in a taxable brokerage account.
With a taxable brokerage account, your choices are almost limitless. So it can be a good idea to peruse your options.
First off, taxable brokerage accounts can be just like other investment accounts above, just without the tax advantages of retirement accounts.
Consider the same type of invesments you would choose in your Roth, such as index funds and mutual funds. Keep your overall investment strategy in mind. These accounts aren’t specifically earmarked for retirement but that doesn’t change good investing tactics.
When it comes to funds, Vanguard is well known for managing funds with solid returns (like the VTSAX) and some of the lowest expenses in the business. If you’re looking for some ideas, here are our favorite Vanguard funds in this post.
That said, if you are on track for a solid retirement and you’re looking for a bit more of an adventure you can consider alternative investments such as wine, art, or cryptocurrency.
Otherwise, you can stick with any combination of low-cost brokerage accounts like Betterment, which is a personal favorite of mine. You can also open taxable accounts with Acorns, Wealthfront, Ellevest, or any of the many other choices out there.
7. Invest in Real Estate
Last but not least, consider investing in real estate. Real estate investing in today’s world is incredibly diverse.
If becoming a landlord isn’t in your future you can get into crowdfunded real estate. You can invest in crowdfunded real estate companies such as Fundrise, CrowdStreet, RealtyMogul, and other companies.
Or, you can do something different and invest in farmland with a company such as FarmTogether.
Another option is to take your 50k and use it as a downpayment to invest in real estate directly. For example, you could use the money as a down payment for a single family real estate rental.
You can search neighborhoods near you for opportunities to buy. Or, you can use a site such as Roofstock. Roofstock advertises vetted single and multi-family rental properties for sale.
When you visit the site, you can look up inspection reports, tenant information, and more. The site even shares property management companies that can manage any property you purchase.
If you’re interested in investing in real estate you’ve got plenty of options available.
If you’re wondering how to invest $50,000 you’ve got plenty of options. No matter what length of investment time you’re looking for or what risk level appeals to you, there are plenty of choices.
You could go ultra safe with bonds or a high-yield savings account, or invest in higher risk investments like business startups or art. Or you could dabble in a bit of everything.
How would you invest a large sum of money if you had it? Share your thoughts in the comments section.