Start with giving yourself a pat on the back. Whether you saved $50,000 by diligently setting aside a portion of your paycheck or you came into money through an inheritance, you now have a tidy sum to grow. Investing is one of the smartest choices to make when you have money to spare. Of course, with that comes the dilemma of how to invest your $50,000. A financial advisor can help you create a financial plan for your investing goals. Let’s take a look at some of the best ways to invest $50,000.
How to Invest in Tax-Advantaged Accounts
First, let’s make sure you cover your bases. Assuming you’ve set aside an emergency fund for unexpected job loss, medical emergencies or other life events, start by evaluating your tax-advantaged investments. Not familiar with the term? Tax-advantaged investments are accounts such as 401(k)s, Roth or traditional IRAs and health savings accounts (HSAs). If you have children, add 529 savings plans and custodial IRAs to the roster.
Each account is designated for a specific purpose, which you need to keep in mind. Retirement accounts such as 401(k)s and IRAs have penalties if you try to withdraw funds before reaching age 59 ½. Health savings accounts, which are tax-deductible, are for qualified medical expenses. Custodial IRAs and 529 savings plans are usually savings vehicles for your children.
If you haven’t reached the maximum contribution limits for each type of account, consider using a portion of your $50,000 to do so. Roth and traditional IRAs have a yearly contribution limit of $7,000 for 2024 (up from $6,500 in 2023). If you’re 50 or older, you can save an extra $1,000.
For 401(k)s, the most you can contribute is $23,000 in 2024 (up from $22,500 in 2023). If you’re 50 or older, the IRS permits you to contribute an additional $7,500 in 2024 (up from $6,500 in 2023).
Keep in mind that you’re not taxed while the money is growing in the account, but your account distributions will be taxed as ordinary income. This happens once you start withdrawing funds at age 59 ½ or older.
How to Invest in Easily Accessible Accounts
After you put aside money in your tax-advantaged accounts and emergency fund, consider how long you’re willing to part with your money. If you want to earn interest on your chunk of change but still want it accessible, you might want to think about high-interest savings accounts. This option is by no means going to earn you large gains on your investment. However, it’s a safe way to earn some interest while having the option to withdraw the funds at any time.
Certificates of deposit (CDs) are another savings vehicle to think about. Just like a savings account, this option won’t earn you an amazing return. Usually, the percentage rates hover in the low single digits. But CDs are a safe investment. You won’t lose money with FDIC-insured CDs. However, you will lose some access to your money. CD terms range anywhere from months to five or six years. You can’t withdraw before the term’s up without facing a penalty fee.
If you’re willing to take on more risk, you can open a taxable investment account. Brokerage accounts have the potential to offer you higher returns than savings accounts or CDs, but come with the risk of losing money. You aren’t guaranteed returns, but you can withdraw your money relatively easily. You’ll just have to sell whatever stocks or funds are in the account if you want cash. However, brokerage accounts come with broker fees and trading fees so the monthly cost can add up.
One way to save on fees is through an algorithm-managed investment account. These are commonly known as robo-advisors. Names you may have heard of include Wealthfront and Betterment. Those are two popular choices, but there are dozens of robo-advisors to choose from. Your current bank may have that as an option as well. The advantage of robo-investing is that it comes at a much lower cost. If you invest $50,000 (or less) with a robo-advisor, expect a fee of around 0.25% for the service.
Find Financial Help
Even though it’s the age of the internet and technology, you do have the option to discuss your financial goals with a person. If you have no idea what to do with your $50,000, it’s OK. You can always speak with a financial advisor. Advisors are trained to know what options are available for you and your money, and can offer you insights.
While it’s never mandatory to find someone to help manage your money, in some situations it may be the best bet. If you lack the time or desire to fully research your financial options, having an expert in your corner might be ideal.
Take your time deciding how you want to invest your money. It’s better to know all your options before jumping in. While retirement may seem far away if you’re young, remember that maxing out your contributions to tax-advantaged accounts helps the future you. It might sound exciting to open a brokerage account, but a long-term financial mindset will save you problems as you get older. Whatever you decide to do, just know that you have options.
Tips for Savvy Investing
- A financial advisor can help you manage your investments. Finding a qualified 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.
- Consider your goals, time horizon and tolerance for risk before you invest your money. All of these factors inform which asset allocation is appropriate for your situation. In general, the longer your time horizon the better, because your investments can grow over time and recover from potential downturns.
- While you research your options, you can always stash the cash in an interest-yielding savings account. You’ll earn interest while deciding if you want to find a longer-term investment. And the best part is you can withdraw the money at any time.
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