Let’s say you found yourself with $10,000. Would you use that money to buy what you need and maybe want, or would you rather keep it in a savings account or invest it?
You have several options regarding what you should do with $10,000. But perhaps the best thing you can do with that amount of money is to develop a plan to boost your capital growth further.
To help you out, here are a few investment options that can help you make the most of your $10,000.
While individual stocks carry heavier risk than mutual funds and exchange-traded funds (ETFs), they could be worth your $10,000, especially if you’re looking to do more research and familiarize yourself with public companies.
In addition, don’t forget to diversify. You should never put all $10,000 of your investment money into one single stock, regardless of how well the stock or company is performing. Not spreading your money across different assets is a decision that would be detrimental to you financially.
That’s why you should build an equity portfolio consisting of various individual stocks, particularly those that can counter other stocks’ risks.
Mutual Funds and ETFs
Mutual funds and ETFs are convenient ways to invest in different securities, and the best ones tend to charge only a small fee.
Mutual funds and ETFs have diversified holdings of stocks or bonds and are created for a specific purpose. Whether it’s to invest in a particular industry, provide cash flow, or reflect the performance of a market index, mutual funds and ETFs are intended for certain goals.
You can own shares of multiple funds since the management team of each fund you invested in will watch over the portfolio.
In exchange, you will have to pay the funds a management fee, i.e., expense ratio, every year. The expense ratio is usually expressed as a percentage of your entire investment. Mutual funds and ETFs are available when you open an individual retirement account (IRA) or a brokerage account.
Bonds are another investment option for your $10,000. Holding these securities will have you lend money to a company or government for a set period, and once that ends, the bond issuer will return the money to you. During the interim, the issuer will pay you periodic interest payments at a specific rate.
Keep in mind that you’re still at risk of losing with bonds. If you’re considering selling your bond before its maturity date, you can find a buyer in a secondary market. However, market conditions could affect the price you will receive, which can be lower than what you paid.
Moreover, if the issuer encountered some financial issues, they could miss the interest payments or default on giving back your initial investment.
Junk bonds, which have higher interest rates than other bonds, carry more risks. And like any investment, there will always be a risk-return tradeoff. Many brokerages that offer stocks allow their clients to buy bonds through their platforms.
Cryptocurrencies have grown significantly popular, but extreme market volatility has greatly impacted prices and the overall crypto space.
Still, even before the recent market news and events, cryptocurrencies have posted massive gains as well as massive losses. Considering the uncertainty and serious risks associated with crypto investing, you may be better off exploring other investment options for your $10,000.
However, if you’re determined to put your hard-earned money into cryptocurrencies such as Bitcoin or Ethereum, just be sure to invest an amount you will not regret losing. You can try assigning no more than 5% of your entire portfolio to these digital assets as your starting point.
Individual Retirement Account (IRA)
Opening and contributing to an IRA is another way to put your $10,000 to good use. Plus, an IRA can offer better benefits than what you can receive from your company- or employer-sponsored retirement plan.
Typically, the best IRA accounts provide you the option to hold a pretty diverse set of assets, adding flexibility to your investments.
You can also opt for a Roth IRA, which involves no tax on your growing money. Additionally, you can withdraw your money in retirement without paying taxes or a penalty. The rules of a Roth IRA will even let you withdraw more than the minimum requirement and before you hit the retirement age.
So far, you can make annual contributions of up to $6,000 into an IRA or $7,000 annually if you’re 50 or older. Contributing the maximum amount can help you stick to the path toward your retirement goals. You may even be able to spare a few thousand dollars that you can invest somewhere else.
Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are companies that own or back income-generating real estate across different property sectors. Instead of owning physical real estate, you’re investing in shares of a REIT.
While $10,000 is unlikely to be enough to purchase your own property, REITs can provide you access to a range of properties. Many REITs focus on a specific type of real estate, such as residential or commercial property, but a few hold various properties.
For companies to be considered REITs, they first need to meet the 90% rule, which requires the firms to allocate about 90% of their taxable income to shareholders every year in dividend form. The rule is another factor that makes REITs an excellent way to earn an income.
REITs are also highly liquid, which is excellent for investors who want to cash out and use their money elsewhere. Compare that with the long and often expensive process of selling actual property.
Opening a health savings account (HSA) can cover healthcare costs that you may need to take care of in the future. But first, you will need to enroll in a high-deductible health plan (HDHP). Without it, you may be unable to open and contribute to an HSA.
Currently, the maximum you can deposit into an HSA as an individual is around $3,650, which provides you with a triple tax advantage.
First, your contributions go into your account pre-tax. Second, money growth is exempted from tax. And third, your withdrawals for qualified medical expenses will also not be taxed.
Moreover, once the money you contributed is in your account, you can use it to buy a mutual fund or ETF, depending on your HSA provider. You can also delay your earnings’ income taxes, provided they remain in the account.
If there’s no need for your $10,000 to go to your future healthcare expenses, you can use HSA on whatever you may need once you’re 65 years old. You will need to pay an income tax, but no penalty fees will be involved.