How to Invest $10,000: 7 Ways to Allocate It

Typically, Americans start investing for retirement through their first full-time job. As a result, their investments grow gradually. However, $10,000 can give a helpful jolt to your portfolio, whether you started investing last week or you’re close to retirement. There is an abundance of profitable assets you can invest $10,000 in today, depending on your goals. Here are seven common ways to help that money grow.

If you have $10,000 to invest, a financial advisor can help you create a financial plan for the future.

Max Out Your IRA

If you have an individual retirement account (IRA), you can deposit a portion of your $10,000 into your account. This hefty contribution will make excellent progress toward your retirement goal. Because federal regulations limit contributions to your IRA, you’ll have money left over. For instance, deposits to your account in 2023 max out at $6,500 for the year or $7,500 if you’re age 50 or older.

Choosing this route will leave you with $2,500 to $4,000. You can invest the remainder in the options below.

Contribution to a 401(k)

If your employer offers a 401(k) retirement plan, you could deposit the money into this account. Specifically, it’s an excellent idea to contribute enough to your 401(k) to receive the full amount of matching funds from your employer. For instance, your job might match contributions equal to 5% of your paycheck.

Therefore, contributing this amount scores you free investment money. However, 401(k)s generally give less flexibility and control of your investments, so it’s wise to invest more of your money into other investment accounts once you max out your matching funds.

For 2023, employees could invest a maximum of $22,500 (and an additional $7,500 for those over age 50).

Create a Stock Portfolio

$10,000 is an excellent amount to start investing in individual companies. For example, you could buy $1,000 of stock in 10 companies or $500 of stock in 20 companies. However, self-directed investing requires you to do your research to make informed decisions. Otherwise, taking shots in the dark isn’t likely to make your portfolio profitable.

In addition, it’s recommended to diversify your investments instead of buying $10,000 of one company’s stock. Diversifying spreads your risk among different assets, shielding you from massive losses and exposing you to well-performing assets.

Invest in Mutual Funds or ETFs

You can also supplement your portfolio with shares of mutual funds and exchange-traded funds (ETFs). These funds spread your dollars across a broad range of commodities, stocks, bonds and index funds. These investment tools can offer diversified exposure to an asset class with low fees because they don’t require active management.

To invest part of your $10,000 in shares of mutual funds or ETFs, open a brokerage account with a broker like Vanguard or Fidelity Investments.

Buy Bonds

Bonds are yet another asset to strengthen your portfolio. Like the last two options, you can buy them without limits from investment regulations. Bonds are loans that governments and companies take out and pay interest for later. They are considered less risky than stocks. And as a result, investors typically add them to their portfolios to lower overall risk. However, you should note that bonds have an inverse relationship with interest rates. So when interest rates are raised to control inflation, the value of bonds go down.

If you’re interested in buying bonds, you will have to do so through a brokerage account.

Plan for Future Health Costs With an HSA

An HSA is an excellent tool for paying for healthcare in retirement. Like a 401(k), you won’t pay taxes on the dollars you contribute to the plan. Even better, qualified withdrawals are untaxed as well.

In addition, the money in the account won’t disappear after a year like in a flexible savings account (FSA). Therefore, as long as you use the funds for healthcare costs, you can save on taxes and prepare for healthcare costs when you’re older through an HSA.

The only drawback to this option is the contribution limit, which is $3,850 for 2023. If you’re 55 or older, you can contribute an extra $1,000. In any case, you’ll have more to use elsewhere.

Invest in Real Estate or REITs

While $10,000 won’t afford you an investment property, you could combine it with funding from loans or partner with investors to purchase real estate. On the other hand, $10,000 on its own can be a sizable deposit into a real estate investment trust (REIT).

Like mutual funds and ETFs, REITs are investment vehicles that can diversify your portfolio. Specifically, REITs split your money among numerous real estate investments, such as residential property, commercial buildings, and land containing natural resources.

REITs don’t allow you to own property outright, but they offer more liquidity than real estate. For example, selling a building can be a demanding, prolonged process. On the other hand, you can sell your shares in an REIT quickly if they have appreciated or you want to invest in another asset.

Which Investment Is Right for You?

Between all the investments listed above, $10,000 can go in the blink of an eye. Therefore, it’s recommended to evaluate your financial circumstances before committing. Your investments should help you progress toward your financial goals and fit your risk tolerance. For instance, investing in a portfolio of stocks you selected yourself can be riskier than investing in an ETF, so it’s vital to understand which appeals to your preferences.

In addition, you can combine several of the options above. For example, if you want to focus on retirement, $10,000 can max out your IRA and HSA contributions (give or take a few hundred dollars) in one go. On the other hand, if you want to diversify your portfolio, you could split the money three ways between mutual funds, REITs, and bonds.

Bottom Line

An extra $10,000 might not make you the wealthiest person on the block, but it can provide a significant leap forward in your investments. If you don’t have high-interest debt, you can use the money toward numerous lucrative assets, from retirement accounts to commercial real estate. However, before deciding how to invest, it’s best to gauge your unique circumstances and investment approach. That way, you can use the money in a way that benefits you most and aligns with your priorities.

Tips for Investing $10,000

A windfall of $10,000 can be intimidating or exciting, depending on how comfortable you feel with investments. A financial advisor can help you understand your options and make an investment plan. 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.
Splitting $10,000 between different investments might seem unprofitable, but the investment type can impact your gains as much as the dollar amount. So, if you use less than $10,000 for a specific investment, use this guide on how to invest with little money.