Ways to Invest $25,000

Depending on your investing strategy and financial resources, there are many things you can do with $25,000. We discuss four steps to prepare for investing this sum of money and then several options you may find appropriate given your goals, risk profile and timeline. A financial advisor can help you create a financial plan to protect your investments and identify new opportunities to make money.

What to Consider Before Investing

1. Is Your Emergency Fund Large Enough?

If your $25,000 is your only savings, you need to be sure it is in non-risky securities, like a high-yield savings account. Ideally, you want an emergency fund covering three to six months of income if you have a stable career and low debt. You’ll need more if your paychecks are irregular or you have higher bills. That means, if you make $70,000 a year, you may want to have $17,500 to $35,000 tucked away.

Also, you need to be sure that your emergency fund is liquid enough. Tying $25,000 up in a safe, low-risk security without being able to quickly access that money can result in serious cash flow problems.

2. How Much Debt Do You Have?

If you’ve got $25,000 and have a significant amount of debt, it may make sense to pay the debt off. While some debt can be good, too much at a high interest rate can weigh you down. Credit card debt, especially, should be paid down before investing, because these rates can be above 20%.

Other debts, such as student loans or a mortgage, may make more sense to keep. It’s valuable to research whether you should pay down these debts or invest. It all depends on your return on investment versus the interest rate on the debt.

3. What Level of Risk Are You Comfortable With?

Different investments have a range of risks that come with them. You could invest more aggressively in certain stocks and funds that could deliver higher yields. But, these investments may come with an elevated level of risk. You may lose money.

On the other hand, investments like CDs and bonds come with a lower level of risk, but you may end up paying an opportunity cost. Your asset allocation (how you spread your money around different types of assets) all depends on what level of risk you’re comfortable with.

4. Do You Have a Financial Advisor?

If you need advice on how to invest $25,000, it may be wise to turn to a financial advisor. While many financial advisors require much higher amounts before offering advice, robo-advisors can provide helpful guidance that fits your goals, how long you want the money to be invested and related variables.

How to Invest $25,000

Now that we’ve covered what you should think about before investing, let’s talk about where you can put your money to (hopefully) watch it grow. We’ll rank these investments from simplest to most complicated.

1. Open a High-Yield Savings Account

If you want to take the risk out of the equation and need to be able to readily access your money, a high-yield savings account is a great option. Where many common savings accounts give out paltry 0.01% interest rates, a high-yield account will deliver, at the time of writing, close to 5%.

That means that, after a year at 4% interest, your $1,000 will grow by $1,000. Or if you put the money in an account with a 3% interest rate, it will grow over 12 months by $750. While it’s not the highest return, it comes with very low risk and offers more flexibility.

2. Sign Up for a Taxable Brokerage Account

If you want to invest in the stock market outside of a retirement account, you need to open a brokerage account. Most online brokerages offer many low-to-no-fee trading options that can get you started putting money in stocks and funds. A more traditional, full-service broker may come with higher fees, but they’ll take a lot of the research off your plate and lend their expertise.

But once you get the account, how do you invest your $25,000? Remember the value of a diverse portfolio and allocating your assets. A diverse portfolio of funds, stocks, bonds and other securities will help you hedge against major losses if a specific company or sector drops. Among attractive funds, whether mutual or exchange-traded, are index funds, including funds that track the movement of the S&P 500, for example. Other funds are linked to bond indexes.

3. Alternative Investments

Alternative investments are assets that fall outside the traditional investment categories. These kinds of securities include venture capital or private equity, commodities, derivatives, currencies, structured settlements, managed futures, hedge funds and real assets such as art and antiques.

The reasons for moving into an alternative investment include a need to diversify a portfolio, specific tax incentives or an unusual opportunity to take advantage of a deeply discounted asset.

4. Invest in Real Estate

One of the most common alternative investments is real estate. A $25,000 sum is enough to put 20% down on a $125,000 property. This could be used to secure a mortgage, then you could pay the mortgage with the rental income of the place. Or, you could partner with a group on a bigger investment property. Your $25,000 would grant you a chunk of the rental income.

If you can’t find the right properties or people to work with, consider investing in a real estate investment trust (REIT). A REIT owns properties or mortgages on the properties and sells shares that you can buy like it was a stock. The REIT then pays out dividends that are the profits they make.

The downside of investing in physical property is its illiquidity. If you need your money back, you have to sell the property or have someone buy you out. While REITs don’t carry this risk, they’re sensitive to shifts in interest rates and unemployment. If rates go up, it can cut into REIT profits. Likewise, if unemployment goes up, it can mean fewer tenants can afford rent.

Bottom Line

If you’re wondering how to invest $25,000, we’ve given you the major examples. There are other investments you could make: art, home improvements, a sports car. But, the tips listed here are more tried and true. It all depends on your goals and the level of risk you’re comfortable with.

Tips for Investing Responsibly

Getting help may be the single best choice you can make when investing. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Knowledge is half the battle. Make sure you know what taxes you may have to pay on your investments with SmartAsset’s free capital gains calculator.