If you find yourself with an extra $20,000 in your bank account, whether it’s from a work bonus, inheritance, or a stroke of luck, don’t let it go to waste. Instead of letting it burn a hole in your pocket, consider putting that money to work and watch it grow. In this article, we’ll explore 10 investment strategies that can help you make the most of your $20K.
1. Pay off debt
Paying off debt might not sound like an investment, but it can actually provide a better return than you might find elsewhere. For example, the average credit card interest rate is a staggering 22.77% APR. By using your $20K to pay off debt, you can save hundreds of dollars in interest charges every month and get on the right financial track. Additionally, paying off debt will boost your credit score, opening doors to better deals on credit cards, loans, insurance premiums, and more.
2. Build an emergency fund
If your emergency fund is lacking or non-existent, now is the perfect opportunity to start one. An emergency fund acts as a safety net to keep you afloat during unforeseen circumstances like job loss or unexpected expenses. Aim to save three to six months’ worth of living expenses, although your lifestyle, job stability, and family needs may require more. Consider opening a high-yield savings account, where your money can earn upwards of 5% APY.
3. Max out your retirement accounts
Retirement accounts such as IRAs (traditional or Roth) and 401(k)s offer tax advantages and are a great way to build your nest egg. With $20K, you can increase or max out your contributions. Take advantage of any employer 401(k) match, as it’s essentially free money. Max out your IRA contributions and be aware of contribution limits for 2023 and 2024.
4. Invest in an index fund
Index funds are a simple way to grow your retirement or brokerage account. They track the performance of a specific market index, such as the S&P 500. Index funds offer low costs, diversification, and historically attractive returns compared to actively managed mutual funds.
5. Invest with a brokerage account
Consider opening a brokerage account with an online broker to access a wide range of investment options. With $20K, you have plenty of choices, including stocks, bonds, options, mutual funds, ETFs, cryptocurrencies, and more. Look for a broker that offers low costs, research tools, and an easy-to-use platform.
6. Invest with a robo-advisor
If you prefer a hands-off approach to investing, a robo-advisor may be the perfect solution. Robo-advisors use algorithms to create and manage diversified investment portfolios based on your goals, risk tolerance, and time horizon. They often offer features like automatic rebalancing and tax-loss harvesting.
7. Invest in fine art
Investing in fine art used to be reserved for the wealthy, but platforms like Masterworks have democratized this asset class. You can invest in fractional shares of fine artworks from renowned artists. Masterworks handles all the buying, securitizing, and storing of the art, and after a few years, they seek opportunities to sell the investments. This can be a unique opportunity to invest in a tangible asset.
8. Invest in real estate
While $20K may not be enough to buy property outright, you can invest in real estate through REITs (real estate investment trusts) or real estate crowdfunding. REITs allow you to buy shares of income-generating properties, while real estate crowdfunding platforms enable you to pool your money with other investors to invest in properties as a group.
9. Build a CD ladder
Certificates of Deposit (CDs) can be a low-risk way to grow your money. By creating a CD ladder, you can divide your $20K between multiple CDs with varying maturities. As the CDs mature, you can cash them out or renew them at current rates. This strategy helps you manage changing interest rates and provides more liquidity than locking your money in one long-term CD.
10. Fund a college savings account
Investing your $20K in a 529 college savings plan can be a smart way to save for future education expenses, not just at the college level but also for K-12 schools. The cost of education continues to rise, and investing in a 529 plan can help you stay ahead of those costs.
TIME Stamp: Your $20K could lose value if you don’t invest it
Remember, investing is crucial for building wealth and securing your financial future. By not investing, you risk losing value due to inflation. While it can be daunting to decide on the best investment for your $20K, don’t let that stop you from making a decision. Consider putting your money in a high-yield savings account while you research and compare your options. This way, you can earn interest, maintain easy access to your cash, and be ready to invest when the right opportunity comes along.
Investing $20K wisely can set you on the path to financial security and provide you with the means to lead the lifestyle you desire. Don’t let your money sit idle—make it work for you.
*[APY]: Annual Percentage Yield