If you have $30,000 to invest, you have many options. Some things, like making the down payment on a house, might be a bit out of reach, but you can still invest in securities ranging from stocks to treasury bonds. No matter your financial situation, there are also a few things everyone can do to put themselves on the path to success. For example, you can almost always help yourself by paying down debt and increasing your retirement savings. A financial advisor who serves your area can help you create an investment plan to reach your short- and long-term goals.
What to Do Before You Begin Investing
Investing can put stress on your financial life if you don’t have things in check beforehand. For instance, if you have sizable debt that you’re paying quite a bit of interest on, you may want to pay that down at least partially before allocating too much to the stock market. Below are some fundamentals you may want to hit on prior to investing a large amount of your income.
Pay Off Your High-Interest Debt
One of the best ways to help yourself financially is to pay off your debt as quickly as possible. So if you have debt, especially high-interest debt from a credit card, use this $30,000 to pay at least some of it. If you owe money on multiple credit cards, consider consolidating that debt with a balance transfer credit card. A balance transfer card allows you to put everything you owe into one place. It’s also common for them to offer an introductory period of 18 or more months with 0% APR. That means you can focus on what you already owe, without worrying about accruing more debt from interest.
Build an Emergency Fund
After paying down debt, it’s a good idea to build some savings for yourself. Start by creating an emergency fund. An emergency fund is just money you set aside so that you can use it when something unexpected happens. This could mean anything from repairing a leak in your roof after a big storm or covering your living expenses if you lose your job. A good emergency fund will cover six months of your living expenses. If you have children or other dependents, or big expenses like a mortgage, you may want to have a bigger emergency fund.
To help yourself build an emergency fund, look for a high-interest savings account. These have much higher interest rates than standard savings accounts. While a big bank like Chase will offer about 0.01% interest on a savings account, savings account from Ally or Synchrony will earn you more than 2% interest. You should also consider money market accounts (MMAs). These function much like savings accounts, but they typically have slightly higher interest rates. The caveat is that they often require a higher minimum balance than savings accounts.
Yet another savings option is a certificate of deposit (CD), which is a deposit account with a fixed term (ranging from less than a month to 10 years). The catch is that you cannot touch your money until the end of its term; early withdrawals result in a big penalty. So you shouldn’t put money into a CD if you anticipate needing it before the end of the term. The longer the term, the higher the rate you can receive.
Build Strong Savings Habits
If you find yourself spending too much money, try tracking your spending with a budget. A budget is a useful tool to help you spend money on important things, before spending money on less important things. What your personal budget looks like will depend on what matters to you. To help you start, try a 50/30/20 budget plan. It will help you prioritize your spending. And even if you struggle to stick to a budget, at least track your spending so that you know where your money is going.
Invest for Retirement
Once you’ve built some savings, you can start looking to invest the remaining amount of your $30,000. At this point, your biggest priority is investing for retirement. You should save as much as you can for retirement, regardless of your life stage. Consider that many Americans have no retirement savings at all. However, the best way for you to invest will depend on when you plan to retire and how much you’ve already saved.
Employer-Sponsored Retirement Plan
If your employer offers access to a retirement plan, consider contributing. A retirement plan like a 401(k) or 403(b) allows you to save money from your paychecks before your employer removes income taxes. That means you don’t pay tax on the money you contribute. The money grows tax-free and you pay tax only when you withdraw it in retirement.
These accounts also have a high annual contribution limit of $20,500 for 2022 (the limit was $19,500 in 2021). So if you’ve got $30,000 to invest, maxing out your 401(k) for the year can help you quickly save a big chunk for retirement.
If you cannot make a maximum contribution, at least contribute enough to meet any employer match. Some employers match employee contributions up to a certain amount. For example, your employer may match 50% of your contribution up to 6% of your salary. So if you earn $100,000 and contribute $8,000 a year (8%), then your employer would contribute $3,000 – matching 50% of your contributions on the first 6%. Not all employers have a matching program, but it’s basically free money and you should take advantage of it if you can.
Individual Retirement Plans
If your employer doesn’t offer a retirement plan, consider one of these individual retirement accounts (IRAs). There are two types of IRA. A traditional IRA offers tax benefits like a 401(k): You don’t pay taxes on your contributions until you withdraw that money in retirement. A Roth IRA, on the other hand, takes post-tax money. You contribute money that you already paid income taxes on.
The nice thing about a Roth IRA is that, since you already paid taxes, you don’t have to pay taxes when you withdraw the money. Even the gains you’ve earned on your contributions come out tax-free! This might be perfect for you if you’re early in your career and have a low salary. Your income tax rate is probably lower now than it will be later in your career. That means you can save money by paying income taxes now instead of later.
One big consideration is that the maximum IRA contribution is set at $6,000 for 2022 (same as in 2021). That’s significantly lower than a 401(k).
Put Money Into a Health Savings Account (HSA)
A health savings account (HSA) is a tax-advantaged account that allows you to save money for medical expenses. Like a 401(k) and traditional IRA, you contribute money to an HSA before your employer removes payroll taxes. You can use the money in your account at any time, as long as you use it for a qualified medical expense. And the list of qualified expenses is large. It includes everything from hearing aids and vision correction surgery to acupuncture and addiction treatment.
One of the big advantages of an HSA is that all of your money rolls over to the next year if you don’t spend it. This differs from other medical expense accounts, such as flexible spending accountants (FSAs). Another perk is that some employers allow you to invest your HSA money in stocks, bonds or exchange-traded funds (ETFs). The investment option, along with the year-to-year rollover capability, means that HSAs effectively double as a retirement account – like a 401(k) that you can tap for medical expenses. Once you hit 65, you can withdraw funds to use for non-medical expenses, though the withdrawals will be taxed as income.
So even if you don’t have any big medical expenses at the moment, you can start saving now and grow it in an HSA until you need it.
A Few Ways to Invest in the Stock Market
If you already contributed as much as you can for retirement, there are still plenty of other ways to invest your $30,000. The right way for you is going to depend on how much money you plan to invest over time and what your appetite for risk and need for guidance might be. Here are some of the best ways to invest in the stock market:
- Open a Brokerage Account: To invest via the stock market, consider opening a brokerage account. Working with a big brokerage like Vanguard or TD Ameritrade gives you the opportunity to trade individual stocks and other securities.
- Invest in Mutual Funds and ETFs: If you don’t have the expertise or risk tolerance to invest in individual securities, you might be better off investing in mutual funds or ETFs. These are baskets of stocks and other investments; they might be manually chosen by a fund manager, or they may simply track a major stock index (this is known as an index fund). No matter how much risk you are willing to take, you will have options.
- Use a Robo-advisor: If you don’t have investing experience or if you don’t want to worry about the day-to-day management of your account, consider working with a robo-advisor. A robo-advisor is a service that digitally manages your investments for a relatively small management fee. It handles all the finer details for you so that you don’t have to worry about exactly which funds to choose or when to trade.All you need to get started is to answer a questionnaire about your risk tolerance and goals. From there, the robo-advisor will create a portfolio and start investing. Minimum investments vary by robo-advisor; some give you more control than others. At the very least, you can opt for a more aggressive or conservative portfolio than what the robo-advisor automatically suggests.
- Work With a Financial Advisor: People with more complex finances or investments may prefer to work with a financial advisor. An advisor is an expert who can help you create an investment plan that considers your entire economic picture. Advisors provide assistance with things like investing, estate planning, creating a will, planning your taxes and saving for college. Financial advisors can also give you guidance on less straightforward types of investments. Maybe you want to buy a rental property or invest in a hedge fund. Advisors can walk you through that process.
Start a College Fund for Your Children
If you have children, you may consider putting money away for their college. A good option for this is a 529 college savings account. These accounts allow you to invest in your child’s future while enjoying some tax benefits.
However, you should wait until after you’ve put your own finances in order to start saving for your children. When they go to college, their children will have the opportunity to get scholarships. They can also work during college. If they take on loans, they will have years to pay them off. The same cannot be said for your retirement. If you do not save enough for retirement, there are very few options available to you. You may even have to rely on your children to help you financially. That makes it vital that you take care of your own finances before using any of your $30,000 toward your children.
Even though everyone’s finances differ, the best way to invest is to look for a variety of investments that fits your goals. You can start with saving for reMost Americans don’t have enough saved for retirement, and you don’t want to spend your golden years stressing about money. Contributing to a medical expense account, like an HSA, lets you pay for medical expenses with pre-tax money while also saving for retirement.
Finally, think about the actual investments you want to make (whether in a retirement account or taxable brokerage account). If you want to invest in the stock market, there are many ways to do so, whether in individual securities or mutual funds and ETFs. Even if you don’t know a lot about investing, robo-advisors and traditional human advisors can lend a helping hand. And once you’ve taken care of your own finances, you can consider saving and investing for your child’s college.
Financial Planning Tips
- A financial advisor could help you create a financial plan for your investing needs and goals. 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.
- As you choose specific investments for your $30,000, common advice says to maintain a diverse portfolio. An advisor or similar digital investing service will help you to construct the best portfolio for your situation. If you’d rather do it yourself, this asset allocation calculator can also get you started.
Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/PeopleImages, ©iStock.com/kate_sept2004