Email FacebookTwitterMenu burgerClose thin

How To Invest $20,000


There is a wide range of investment options available to someone with $20,000 to invest, including mutual funds and individual securities. There are also good uses for money that go beyond what we traditionally think of as investing, including paying off your debt. So how should you invest your money? We’ll discuss some of the options available to you below to help you make the most of the $20,000 you have available to invest.

Where to Put Your Money

Before you start considering actual investment options, it’s good to first consider the best place to put your money. It could be that non-investment options, like paying off debt, will have the best impact on your finances. And even once you decide to start investing, you’ll need to consider what kind of account gives you the best advantage, such as a tax-advantaged retirement account, an investment advisor or even a robo-advisor.

Pay Off Debt

Consumer debt and student loan debt can accrue interest faster than you think. If you already have an emergency fund separate from the $20,000 you’re considering investing, you might want to consider using the money to pay off debt. Rather than waiting and letting interest payments bleed you dry, pay off as much of the principal as you can now with that $20,000 and ensure you won’t have to pay another cent of interest on that amount of debt. This is especially true for high-interest debt such as credit card debt, which has an average interest rate of 20%.

Max Out Your Retirement Accounts

Retirement is the end goal of many financial plans, and the earlier you start, the better. That $20,000 can give you the financial cushion needed to max out your 401(k) or IRA accounts. With that extra $20,000, you won’t have to worry about not having access to the money you put in your retirement accounts.

If you’re under 50, in order to max out both your 401(k) and your IRA in 2019, you would have had to put $25,000 in those accounts. In 2020, those under 50 will have to put a combined $25,500 in both those accounts in order to max out contributions for each account. Contribution limits rose to $19,500 for 401(k)s and stayed steady at $6,000 for IRAs.

You should start by maxing out your 401(k) matching benefits. That means, for every dollar you put in your 401(k), your employer will match a portion of that amount. Matching benefit plans vary widely, but it’s fairly common for employers to offer a 50% to 100% match on employee contributions ranging from 3% to 6% of the contribution limit. Your first priority should be contributing enough to earn your full matching benefit. Don’t leave free money on the table.

High-Yield Savings Account

Although you earn a relatively low rate of return compared to stocks and bond investing, an FDIC-insured high-yield savings account ensures that your money will be safe. They are called “high-yield” savings accounts because they earn more interest than most savings accounts on the market.

Most people will choose the high-yield savings account option as more of an emergency fund option, or one where they need to have immediate or short-term access to the money.  If you think you may need access to the money soon, or are extremely risk averse, or just want a place to put your money while you decide on a different financial strategy, a high-yield savings account may be the right fit for you.

If you’re looking for help finding a high-yield savings accounts, check out the SmartAsset list of strong candidates. Online accounts offer some of the highest-yielding options, including at least two that carry an annual percentage yield of 2% or higher.

Invest with a Financial Advisor

If you want someone to help you come up with a comprehensive plan to help you reach your financial goals, you might want to work with a financial advisor. Find one who specializes in clients with similar financial situations to yours. Some advisors may also offer additional services that could be helpful for you, such as estate planning, tax planning, retirement planning and college planning with 529 plans. Talk to a potential advisor about their investment style to make sure it aligns with yours.

Make sure you know how potential advisors make their money. A fee-only advisor won’t push a product on you just to get a sales commission. Look for a financial advisor who is a fiduciary, meaning that person must always act in a client’s best interests. All SEC-registered investment advisors are fiduciaries.

Use a Robo-Advisor

If you don’t want to hire a traditional financial advisor, investing your money with a robot-advisor is another good option. Robo-advisors use a series of algorithms to provide complete portfolio management. These algorithms choose, diversify and adjust your investments over time, based on your financial resources, tolerance for risk and financial goal timeline. You can put the money into a regular, taxable investment account or even max out a regular IRA or a Roth IRA, and use the rest for a taxable investment account.

Robo-advisors offer lower-cost management fees because they rely primarily on investments in exchange-traded funds or ETFs. Management fees vary, but the typical range for robo-advisors is 0.25% to 0.35% – meaning you’ll pay that percentage each year on the amount you invested with the company. A $20,000 investment is enough to open an account at most companies, such as Wealthfront or Betterment.

Specific Types of Investment Choices

Whether you are investing on your own or getting outside advice, there are several types of investments that you should consider.

  • One of the main options to consider is a mutual fund. A mutual fund company pools money from individual investors and invests it, charging each investor a fee for the convenience of having someone else manage their investments. Investing in a mutual fund is an alternative to hand-selecting individual stocks and bonds and buying them independently. The biggest mutual fund companies are household names. Think Fidelity, Vanguard and Charles Schwab, among others.
  • Another type of investment you should consider is an exchange-traded fund (ETF). These combine features of both stocks and index funds. They track market indices but unlike a mutual fund, they can be traded like stocks. Exchange-traded funds track widely known indices like the S&P 500 or the Dow Jones Industrial Average, but they can also track smaller indices associated with a particular market segment such as biotechnology.
  • Individual securities are another type of you should consider if you have $20,000 to invest. To buy stocks, you can either go directly to the company whose stock you want to buy, or, and this is the more common approach, invest through a brokerage. If you buy through a company, you can buy a Dividend Reinvestment Plan, which takes your initial investment and uses it to buy company shares. As the shares pay dividends, those dividends will be put to work buying more shares.

The Bottom Line

Whether you inherited this money, worked for it or got it some other way, these strategies can help you make the most of your $20,000. These investments can get you ready for retirement, help you prep for your kid’s college fund or help you meet other financial goals.


  • Consider talking to a financial advisor about how to invest your $20,000. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • If you’re looking for a good online brokerage firm, use this comparison tool to find the best trading platform for you. You’ll learn which platform’s are full-service and which are discount, as well as the minimum deposits that some of them require.

Photo credit: ©, © PRADITCHAROENKUL, ©