If you suddenly find yourself with a bit of cash to invest – say you get a bonus, a big tax refund or a small inheritance – it can be a bit overwhelming. There are so many options available to investors, and it isn’t easy to know what you should do. Depending on your financial needs and goals, here are eight practical ways to invest $15,000 in 2022. If you want further help, consider hiring a financial advisor.
Most advise that before you start investing, you invest in your own financial security. Fund an emergency fund for yourself. Although everyone’s needs are different, the safe thing to do is to save enough so that you can cover six months of your monthly take-home pay. For example, if your take-home pay is $2,500 per month, you could use your $15,000 to fully fund an emergency fund that would cover six months. If you are laid off or otherwise find yourself out of work, you have a worry-free six months to find a job.
The two most popular options for your emergency fund are the high-yield online savings account and the money market mutual fund. At the beginning of 2022, Marcus, a Goldman Sachs product , is offering a competitive high-yield online savings account as is Discover. The interest rates are low but near the national average and Discover even offers a bonus.
There is a wide selection of money market mutual funds. Money market mutual funds invest in fixed income securities with short maturities and low credit risk. In 2022, we are in an inflationary, rising interest rate environment which means that bond yields will be low. You might consider an investment in a mutual fund that offers TIPS. TIPS are Treasury Inflation-Protected Securities which protects your principal from inflation. Remember that even though the risk of money market mutual funds is low, they are riskier than high-yield online savings accounts.
Worthy Bonds – An Alternative Investment
If all you want to invest is $10 in bonds, there’s a way to do that. Worthy Bonds is an investment company that buys the bonds of small businesses. In some ways, it is like crowdfunding because investors then buy those bonds from Worthy. This, in turn, funds the small businesses. If you invest in the bonds, Worthy pays a hefty 5% interest on them. You can invest at your own rate and it’s all online. Fair warning: Worthy Bonds are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency.
There is some speculation that both income taxes and the capital gains tax may go up in 2022. Investors are looking for a tax shield just in case. Municipal bonds could be that tax shield. They are bonds issued by municipalities like state and local governments to pay for projects like road construction or installing new water main lines. These bonds are free from federal income tax and in most cases, they are also free from state and local taxes. In an environment of rising tax rates, they have become attractive again to investors after suffering a period when they were not in favor.
There are drawbacks to municipal bonds. Their interest rate is lower due to their tax-free status. If interest rates rise, which looks likely in 2022, the value of your municipal bonds may be lower if you decide to sell. You also must watch out for credit risk. Municipal bonds are ranked according to their credit risk, and you want to be aware of how risky your bonds are before you buy them. If you have $15,000 and need some of your money in a tax-free investment, this is one to look at.
College 529 Savings Plans
Do you want to take your $15,000 windfall and invest in your child’s future education? If you do, consider investing in a college 529 savings plan. Every state and Washington, D.C., has college 529 plans in place, and you can even access other states’ plans if they allow it. A college 529 plan is similar to a 401(k) since it is a professionally managed investment account.
However, it is exclusively for qualified educational and associated expenses. The money you contribute to a 529 plan grows tax-free and when you withdraw it to use for qualified educational expenses, it can be withdrawn tax-free. You get the dual benefits of the power of compound interest and tax-free withdrawal.
You may want to visit a financial advisor for help with the specifics of a 529 plan like what is a qualified expense or if you wish to use the 529 plan for K-12 educational expenses. In addition, you may want to use SmartAsset’s 529 plan comparison tool to see what other states offer that you have access to.
Exchange-Traded Funds (ETFs)
Exchange-traded funds can offer an investor with limited funds an opportunity to enter the equities markets. If you would like to get started investing in the stock market with your $15,000, this is an investment you should look at. Exchange-traded funds are baskets of securities much like mutual funds, but they trade like stocks on the exchange. They offer ready-made diversification for your money. You can invest your $15,000 in one or more ETFs, spread it among different sized companies and the different sectors of the market or commit it to companies that have your investment philosophy.
ETFs are similar, but different, from mutual funds. They also lower expense ratios and lower minimum initial investments. Many of them track a market index. Some track the big, comprehensive indexes like the Standard and Poor’s 500 or they may track smaller market indexes for specific types of securities. Investing in ETFs would help you get started investing in equities with a relatively small stake and with diversification benefits.
Investing in stocks is a terrific way to use your $15,000 if you like to do research and enjoy finance. On the downside, stocks carry substantial risk although the risk level is individual to each stock. If you like to read and research, and if you know your investment goals, you can sort out which stocks you might want to buy.
Although no one has a crystal ball, stock market analysts make predictions concerning which of the eleven stock market sectors are likely to do best in 2022. Will they be technology, financial, real estate or consumer stocks? Do you see yourself as a growth investor or a value investor? You want to single out those groups of stocks and research the one in which you are interested. Are you interested in younger, smaller companies or do you want to invest in the mega stocks?
You may need a financial advisor to help you make the best possible investments. You will also need a stock brokerage with which to place your trades. You can use SmartAsset’s brokerage accounts tool to help you choose the right online brokerage for you.
Have you dreamed of being a commercial real estate investor who buys and sells apartment buildings and high-rises? Maybe you’ve always wanted to own a farm? You could use your $15,000 stake to start to fulfill your dream. You don’t have to have the money to buy an entire apartment building or farm. Instead, you can invest in a real estate investment trust (REIT) that allows you to own a portion of real estate assets. REITs are good investments if your time horizon is long plus they pay nice dividends. You buy a REIT stock or ETF just like you buy any stock. There are also REIT mutual funds which you buy from the mutual fund companies.
If you don’t have a workplace retirement account, you might want to start your own retirement account with $6,000 of your $15,000. You could start a traditional individual retirement account (IRA) where you pay taxes on your contributions when you withdraw them or a Roth IRA where you pay taxes when you make the contribution. The $6,000 contribution is the limit for both types of IRAs in 2022 unless you are over 50 in which case you can contribute $7,000.
The Bottom Line
There are many types of investments you can make with $15k, but you can start with these. You could invest in fine art, which retail investors now have access to, and even more exotic alternative investments. Cryptocurrency is an interest and option for some although you must be aware of the risk. What you should invest in is dependent on your investment goals, time horizon and tolerance for risk.
Tips for Investing
- To find out how much capital gains tax you will pay if you liquidate any of your investments, check out SmartAsset’s capital gains calculator.
- A financial advisor can help you make good investment choices. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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