If you have been working hard and squirreled away a nest-egg, you might be wondering now how to grow it so that your money starts working for you.
Should you invest in stocks or bonds or real estate?
A dizzying array of selections are available in each asset class:
- Stocks: Dividend-paying, growth, and value
- Bonds: Government, municipal
- Real Estate: Residential & commercial
But don’t be dazzled by the investment options available to you because we’ve done the hard work for you so you won’t be wondering any longer how to invest $10k!
#1: How To Invest $10,000
In Real Estate
Real estate has its fair share of ups and downs when economies slow and stock markets crash, but as an asset class overall it is a solid bet if you follow some golden rules.
The first rule is to define the term asset as something you put your money into that produces cash flow. By that definition, a house you own is not an asset unless you were to rent it out to tenants on say Airbnb.
Investments in residential property, commercial property, and REITs can all produce the regular cash flow you seek.
If you are not swimming in cash, the high costs of buying residential property and commercial property may make you think real estate investing is out of your reach. But these days real estate crowdfunding sites make it possible to get started for as little as $500.
Best Way To Invest In Commercial Real Estate
Rich Uncles is one of the best crowdfunding real estate sites. It provides exposure to the commercial real estate sector and you don’t have to be a multi-millionaire to get your toe on the property ladder.
In fact, as long as you meet certain income criteria and have $500 available to invest, you can get exposure to top tier, triple-net lease commercial properties.
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Best Way To Invest In REITs
Not long ago you would have needed to qualify as an accredited investors with a 7-figure net worth or $200,000 in annual income for two consecutive years in order to get access to private market real estate investing.
But these days, only $500 is needed when you invest with Fundrise, an online platform that pools assets from many investors. The monies are then allocated to real estate developers in need of financing.
Unlike traditional real estate deals, which limit your investment to a single property, you can invest $10,000 in real estate through Fundrise and diversify your money to lower overall risk.
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#1 Way To Invest In Residential Property
However, if you have more money and want exposure to residential property, Roofstock is a top real estate site that enables you to buy property 100% online.
The pesky problems faced by real investors in the past are largely solved by Roofstock. For example, Roofstock will scout for properties, rate neighborhoods, create financial projections, and even connect you to property managers.
No longer do you need to lift up your sleeves to find a tenant because Roofstock features properties that are income-producing on day one.
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#2: How To Invest $10,000
In The Stock Market
When it comes to stock market investing, an eye-watering selection of investment opportunities exist, including:
Where on earth should you begin?
Invest In The S&P 500
You don’t have to be particularly smart, says Buffett, to make a lot of money over time but you do need to be patient. You must be willing to park your money in the stock market and not touch it.
The S&P 500 (ticker symbol: SPY) represents the top 500 companies in the United States, and your investing journey begins by placing a buy order at your favorite broker, such as thinkorswim or tastyworks.
It turns out that patiently watching your money grow over time is a challenging feat for most people, who are prone to an action bias, meaning the more they trade the better they think they will do.
When you invest in an index fund or a very low fee total stock market fund from Vanguard, like VTSAX or VFIAX, your bet is that America will do well over time and ultimately the stock market will reflect the increase in economic prosperity.
The hardest task will be to sit on your hands and take no action during a stock market crash or a big economic downturn, but over time the “smart money” has historically done well by staying invested.
Stay Away From High-Fee Mutual Funds
Mutual funds have their merits but they are not all created equal so you should be wary before investing your hard-earned $10,000 into them.
Here are just a sampling of the mutual fund fees you need to watch out for:
- Mutual fund load fees that can span as high as 5% of the amount invested
- Trailing 12b-1 fees that pay financial advisors regularly
- Fund fees that pay operational expenses and managerial fees
Combined these fees can seriously hurt your investment returns, so instead consider an income-generating stock market investment strategy.
Invest In Dividend-Paying Stocks
Did you know that as much as 95% of total stock market returns over most of the 20th century stemmed from reinvested dividends, not price gains according to Jeremy Siegel of the Wharton School of the University of Pennsylvania.
As attractive as it is to buy Amazon or Facebook or Alphabet, the reality is that none of those companies pay a dividend while so-called “boring”, dividend-paying companies like Coca Cola are the ones that have created the bulk of long-term value for patient investors.
So, if you are going to purchase individual stocks as opposed to buy an index fund, dividend-paying stocks are the way to go.
Generate Income From Covered Calls
Covered calls are among the best ways to proactively generate income when you own a portfolio of stocks.
What is a covered call? A covered call is nothing more fancy than a combination of a long stock and the sale of call options against the stock.
For example, if the share price of a stock you own is trading at $46 per share, you could sell a call that pays you a fixed amount of money to agree to sell the shares at $50!
That’s right, someone will actually pay you to agree to sell your shares at a higher price.
Why would anyone do that?
Imagine the stock rallied from $46 to $60, the “catch” is because you agreed to sell your shares at $50, you miss out on the share price gain from $50 to $60 but you do still get to keep the money you pocketed by selling the call.
The person you paid gets to enjoy the gain in share price from $50 to $60 minus the amount paid to you.
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#3: Best Way To Invest
$10k Short Term
While investing in the stock market and real estate are powerful ways to grow $10,000 long term, they are not great strategies when you need to keep your money liquid.
If you know that you have an upcoming purchase to finance, whether a wedding, a home, a car, or some other big purchase, keeping your principal safe is priority #1.
After that, the goal is to squeeze a little juice out of the lemon to create some lemonade in the form of interest.
And the problem with investing in the stock market is your portfolio balance may go on a rollercoaster ride short-term.
Similarly, when you invest 10k in real estate, you often need to tie up your money for long time periods so it’s generally not a good strategy when your time horizon is short.
So, what is the best way to invest 10k short term?
Invest In Certificates of Deposit Or Bonds
Certificates of deposit are similar to savings accounts, but your money is tied up for a fixed time period.
The lock-up time can be as short as a few months or can be as long as many years.
To maximize your rates of return while also maximizing your liquidity, consider creating a CD ladder.
Or if you want greater liquidity and no lock-up time period, government bonds are one of the most liquid markets of all.
To earn a slightly higher interest rate, municipal bonds are a popular choice but make sure that your local government has its financial house in order before loaning them money. Some states, like Illinois, are in a world of financial hurt and you would be wise to think twice before parting with your money.
The bottom line is if you have a long term horizon, real estate and stock market investments may fit the bill. However, if you need short term liquidity and want to earn some interest while parking your money somewhere, bonds and certificates of deposit may be your best bet.
What is the best way to invest 10k that you have discovered? Share your ideas below, we would love to hear from you.