Everyone has a different definition of financial comfort, but let’s just say there’s not much comfortable about a $ 50,000 landing in your lap – except, maybe, the weight of all that paper. Deciding how to invest that amount of money can also get quite onerous, especially if you – like most people – are not used to having a flood of money all at once.
Don’t let indecision weigh you down. Instead, we suggest a measured approach. First, make sure you know if that money will be taxed – the IRS could quickly turn that $ 50,000 into the still exciting but slimmer $ 35,000. Then tick two crucial financial boxes: having an emergency fund and not having high interest debt.
What’s the best way to invest $ 50,000?
It depends on you and your goals. Consider the following five buffet suggestions – grab some or load up on the ones you like.
1. Start investing in the market – now
The most important lesson of invest 101: Time matters, especially time spent in the market. There is an opportunity cost to keeping your money in cash, because even days and weeks of investment growth count.
While you may be tempted to pour that money out bit by bit, the best strategy is to go fully into the market, according to Vanguard, one of the world’s largest investment firms. Jumping in will usually outperform average purchase, a sophisticated term for this dribbling strategy of investing a fixed amount at regular intervals with the aim of smoothing the ups and downs of the market.
Ok, so we’ve convinced you that time is running out. Do not give up on the steps necessary to understand the stock market strategy that’s what’s best for you – and remember, you don’t have to invest all of the $ 50,000 in the market yourself. Once you’ve worked out your plan, you’ll need to open a brokerage account to gain access to various types of assets (like stocks, mutual funds, exchange-traded funds, and bonds).
2. Consult a robo-advisor
If the prospect of selecting investments is daunting, you might want someone – or something – to dive deep into your financial life. Nowadays, you can get a financial advisor for a lot less than what you would have paid five or 10 years ago, thanks to services like Wealth front and Improvement, among NerdWallet’s choices for top robo-advisors. Your $ 50,000 more than the minimum balance required for both.
These companies have computer algorithms that are a big part of the Portfolio Management dirty work, but on the front line are human advisers who can walk you through the recommendations made by these computers and make adjustments based on your feedback. (Not sure if you want a robot or a human? Read more about how to choose a financial advisor.)
The rise of robo-advisers has opened up a range of low-cost options for investors of all types. Computers make services cheaper than having a direct relationship with a financial advisor, but the human element is still there, if that’s what you’re looking for. For example, at Vanguard Personal Advisor Services, you’ll pay 0.30% of your account balance and work with a team of advisors. AT Wealth facet, you’ll pay a fixed annual fee starting at $ 600 and receive a dedicated certified financial planner.
“Check our choices for best robo-advisers across a variety of categories.
3. Maximize retirement
Make tomorrow a solid you: Complete your retirement account.
If your company offers a 401 (k) that matches employee contributions, and you haven’t contributed enough to earn that amount, let this influx of money free up your budget so you can do it. Unfortunately, you cannot deposit that money there all at once, despite the tips above. A 401 (k) has an annual contribution limit of $ 19,500 for 2021 ($ 26,000 for those 50 or older) and is funded by deferrals from your paycheck; most do not accept flat rate contributions.
The other option, if you don’t have a 401 (k) or already fund one, is an individual retirement account such as a Roth or traditional IRA. These also have annual contribution limits – $ 6,000 in 2021 ($ 7,000 if 50 or older). Is it worth putting away that kind of stupid change now that you’re such a gamer? This Roth IRA Calculator, who does the math to project the value of your contributions down the line, will tell you the answer is “yes”.
4. Diversify your investments
A lot of things get easier when you have more money, and diversification is one of them.
With $ 50,000 you can really get started in your diversification game – did we make that fun? – and take a look at everything a good asset allocation plan takes into account: taxes, investment goals, time horizon and risk tolerance.
“For retirement, you will probably still put the majority of your portfolio in an S&P 500 index fund. But you will also have money to allocate.“
We have devoted an entire article to the different ways to invest in stocks. Many people end up choosing a fund with built-in asset allocation, like a target date fund or a Standard & Poor’s 500 index fund, which owns some of the largest companies in the United States. If the goal is retirement, you probably still put the bulk of your portfolio in an S&P 500 index fund. These big companies are big for a reason, and their continued growth and stability is a good anchor. Consult our list of best brokers for mutual funds if you prefer this route.
But you will also have money to distribute in funds that own small and medium-sized businesses, and in international and emerging markets. For shorter term goals or to balance risk, you can select bond funds. Finally, it might be time to try your hand at investing in specific companies. Plot ? Learn more about how to buy individual stocks.
Since the money you have is over 401 (k) and the IRA contribution limits, you’ll want to open the brokerage account we mentioned earlier so you can invest the rest. (Here is more on how to open a brokerage account.)
You should think of all of your long-term money as one larger portfolio, regardless of how many accounts you have. For example, you can fill in the gaps in a selection of sub-401 (k) investments with the investments you choose in your IRA or taxable account.
You also want to optimize tax efficiency. Because a taxable brokerage account is, well, taxable, it makes sense to hold investments that carry a low tax burden – like stock index funds and municipal bond funds – in that account. Investments that are taxed as ordinary income or that generate capital gains, such as corporate bond funds and mutual funds with a high churn rate, should be placed in a tax-deferred account such as an IRA traditional or 401 (k).
Nerdy tip: There is no right or wrong asset allocation, but you want to choose the best mix of investments for your needs – and by ‘needs’ we mean your ability to tolerate risk, your investment goals and your risk tolerance. your time horizon.
5. Invest for more than retirement
As long as financial goals come on, retirement is monopolizing all the attention. But a windfall can be like permission to consider side goals, like a down payment for home or college for your kids.
A house is not an investment, but it is an asset. Assuming your home is valuable, your monthly mortgage payments are capital that you can someday tap into. But you will need a down payment first, and it may take years to save the recommended 20% to avoid private mortgage insurance, which can add $ 100 or more to your monthly payment, depending on the value of your home. This extra money can go a long way to speeding up this process.
For a university fund, the IRS allows you to withhold 529 contributions to the plan, which are subject to the annual exclusion from donation tax. You can put five years of contributions at one point – it’s $ 70,000; or $ 140,000 for a married couple – without paying gift tax.