What To Do With $50k: Best Ways To Invest $50,000

Article Summary:

If you’re wondering what to do with $50k, congratulations. The good news is there are plenty of smart ways to invest $50k. For starters, pay off high-interest debt, open a high-yield savings account for your emergency fund, and top off any contributions to your retirement accounts. After that, the sky’s the limit on ways to invest that money for you and your family’s future, such as investing in the stock market or buying real estate.

Deciding what to do with $50k is a good problem to have. Maybe you recently got an inheritance from a loved one who passed away or earned a big bonus at work. Or perhaps you’ve simply realized your savings account has reached $50,000 and it’s just sitting there earning pennies on the dollar when it could be put to much better use.

Sure, you could buy a new car, go on a fancy European vacation, or buy a timeshare with $50,000. However, there are much better uses for that extra cash than using it on something that doesn’t improve your financial situation or generate cash flow.

Today we’ll take a look at eight different ways to use that $50k. The first thing is to focus on your immediate financial needs before deciding which types of investments make the most sense for your risk tolerance, age, and timeline.

1. Pay off high-interest debt

If you find yourself with a windfall, possibly the best use of at least some of that money is to pay off any existing high-interest credit card debt. Carrying mortgage or car loan debt is normal (and often inevitable), and these loans typically come with relatively low interest rates if your credit score is good. But carrying a balance on credit cards is a surefire way to drag down your overall financial situation.

Carrying that kind of debt around is a burden and a serious drain on your hard-earned money in the form of ridiculously high interest rates. Say you owe $5,000 on a credit card charging 18% interest, and you also have $5,000 in certificates of deposit (CDs) that are earning a generous 5%. While this sounds like a good balance, you’re actually losing money. Do yourself a favor and pay off that credit card before you start investing in something that will make you money.

One option to pay off high-interest credit card debt is using a balance transfer card. Since some of these cards carry balance transfer fees, it’s best to compare all of your options before choosing a card.

2. Build an emergency fund

If you haven’t already stashed away the recommended three to six months of living expenses in an emergency fund, do it now. It’s important to have that money set aside in case anything goes wrong — job loss, illness, a new roof, etc.

Even if you already have an emergency fund, double-check that it’s enough for a rainy day. It couldn’t hurt to top it up a little right now since you have the extra money. This is also a good time to move those funds to an online high-yield savings account so you can earn a better interest rate than a savings account at a traditional financial institution.

Or, if you want better access to the cash, look into money market accounts. These accounts can also have pretty competitive rates and combine some of the features of both savings and checking accounts. You might as well earn at least a decent interest rate on your emergency funds. As you do your research, try to find an account with no monthly maintenance fees or minimum balance requirements, like the ones below.

3. Assess your retirement accounts

As long as your credit cards and emergency fund are squared away, the first place you should invest $50,000 is your retirement account. Unless you’re independently wealthy, there is no better investment than one that invests in your future.

If your company offers a 401(k) retirement plan, be sure to take advantage of that. Many companies will match employee contributions up to a certain percentage, and you don’t want to miss out on free money. If your firm doesn’t provide a retirement plan, you can set up a traditional individual retirement account (IRA) or a Roth IRA and save for your retirement on your own.

If you already have retirement accounts, check to see if you’re on track to meet your annual contribution limits ($22,500 for a 401(k) and $6,500 for IRAs if you’re under 50 years of age). That way, if you’re a little light, you could use some of the $50k to meet your contributions for the year.

4. Invest in the stock market

If you invest $50,000 in the stock market, you’re giving yourself an opportunity for some of the best returns, and there are a ton of options to choose from. If you’re a savvy investor, you can pick individual stocks or dividend stocks, which have the potential for some really high yields and/or dividend income — if you pick the right ones. However, that can be very tricky to do, and if your risk tolerance is low, individual stocks might not be the right choice for you.

Instead, you could invest $50k in mutual funds or similar financial products like index funds or exchange-traded funds (ETFs). The beauty of these types of investments is that the funds give you instant portfolio diversity because they hold a basket of securities. This dilutes your risk over many assets rather than just one company’s stock.

You can also invest in the stock market through your retirement account. That said, with a windfall of $50k, you’ll probably need to open a taxable brokerage account with a reputable financial institution to manage your transactions. Take a look at some of the brokerage firms below to find the right firm for your investing needs.

IMPORTANT! Keep in mind that a mutual fund is often an actively managed fund. This means they typically have higher costs than a (usually) passively managed index fund or ETF.

5. Invest in real estate or real estate investment trusts (REITs)

Real estate investing is rarely a bad idea — it has some of the highest returns of any asset class — and it allows you more control than stock market investments. For example, if you invest $50,000 in a down payment on a rental property, you could earn a decent amount of passive income from that investment for the rest of your life.

Plus, if you maintain it well (and the market cooperates), the property value will increase, and you can grow your equity that much quicker. You could even parlay that one rental property into multiple rental properties over the years, giving you even more cash flow from rental income. Although the term “passive income” is a bit of a misnomer because maintaining real estate does require some work on your part.

If you don’t want to be the kind of real estate investor who owns and maintains the actual property, you could invest money in a real estate investment trust (REIT) instead. REITs are companies that trade on the market like stocks and typically own, operate, or manage income-producing real estate or related assets.

Real estate investing can also be done through peer-to-peer lending or crowdfunding sites and has the potential to be lucrative but also very risky. Qualifications for borrowers are typically less strict than they are with banks or other lending institutions. Lending money this way means you have an increased chance of losing your entire investment.

Pro Tip

There are a lot of ways to invest in real estate, and it’s often financially rewarding. However, there are real estate investors of all types, so decide which one you are. If you can swing the down payment and you don’t mind some upkeep and maintenance, a rental property is one of the best ways to earn extra income in real estate.

6. Start your own business

Have you always dreamed of owning your own business? Fifty thousand dollars could give you a pretty good start.

Obviously, running a business isn’t something to be taken lightly. However, if you have a solid business plan, you might want to invest $50k in that business model and see if you can give up working for someone else. One of the most solid investments you can make is to invest money in yourself, and having your own business is just one way to do that.

If you need funds in addition to your $50k, take a look at some of the business loans below.

7. Start a 529 college plan

If your personal investment plans are pretty squared away, and you have or plan to have kids, you might invest $50k into a tax-advantaged 529 plan. Also known as a “qualified tuition plan,” a 529 plan is meant to be a savings and investment vehicle for future education costs. There are a couple of different options, but a 529 plan works basically like a retirement account.

You deposit a certain amount of money, invest in different securities — such as mutual funds, index funds, and ETFs — and watch the money grow. Or, for simplicity, you could invest in a target-date fund. This fund does all the work for you and gradually transitions to more conservative investments as your child nears college age and needs the money.

College tuition costs show no signs of going down, so if you have the means to start saving money for your child’s education, this is a good way to start. Keep in mind that, like retirement accounts, 529 plans come with fees and restrictions (and vary by state) so know what you’re getting into before you decide if this is the best way to save money for college.

Related reading: To get an in-depth understanding of all the ins and outs of 529 plans, take a look at our articles exploring the tax advantages and appropriate expenses for this plan.

8. Hire a financial advisor

If you really don’t feel that you’re qualified to make investment decisions, getting independent financial advice from an investment advisor or financial advisor can be a huge help. Sure, financial advisors will cost you, but they’re often worth the money. They can help you more accurately assess your personal financial situation, your financial goals, and offer you investment advice depending on factors such as your age and how much risk you’re willing to take on.

You can even learn about some types of alternative investments that you’ve never heard of, or get help weighing the pros and cons of investing in commercial real estate versus rental properties. The bottom line is, getting some assistance with your financial planning can be well worth the cost if it puts you on the right track.

Pro Tip

If you’re new to investing in the stock market, don’t panic if some of your assets lose money. Stock market fluctuations are normal and nothing to be alarmed about because, historically, the market always bounces back.

FAQs

How is a money market fund different from money market accounts?

Money market accounts are deposit accounts, typically used for saving money, much like a savings account that earns a decent interest rate. They are very liquid and are federally insured up to $250,000.

On the other hand, money market funds (also known as money market mutual funds) are an investment and often used to hold excess cash within your portfolio. A money market fund is not federally insured and comes with a variable rather than a fixed interest rate. That said, these funds are still considered very safe even though they’re not terribly lucrative, with returns typically lower than your average money market account.

What is the difference between a mutual fund that’s passive vs. an actively managed fund?

A fund that’s actively managed means there are a team of investment managers who make frequent trades and otherwise manage the mutual funds so as to optimize the assets within the active funds. A fund that is passively managed, like an index fund or ETF by comparison, tends to stay fairly stable with the securities it holds.

Another key difference in the two management styles is that active funds tend to have higher expense ratios. This is, obviously, because they require more work on the part of fund managers.

What’s a robo-advisor?

A robo-advisor is a type of financial advisor that assists with financial planning and investment advice with a minimum of human interaction. Basically, they provide financial suggestions based on algorithms and mathematical rules rather than (educated) opinions. They’re also cheaper than a human financial advisor, but the jury is still out on whether a robo-advisor is actually more effective in helping you invest money than an investment expert.

Are capital gains taxes the same as taxable income?

Capital gains taxes are what you have to pay the IRS when you sell off certain assets, such as individual stocks or mutual funds, for a profit. If you sell the security after owning it for less than a year, that is considered a short-term capital gain, and that is considered taxable income. That means you’ll pay the same tax rate as you would for your regular salary, which could be as high as 37%.

There are tax benefits if you hold onto the asset for a year or more. If you wait to sell, you can save money because it’s considered a long-term capital gain, and you’ll be taxed at a lower rate, which is up to 20%.

How much is too much cash in savings?

If you’ve been taught your whole life to stop spending and put more money in a savings account, it can seem like the balance of your bank account can never be too high. But realistically, your savings should only be enough to cover three to six months of living expenses in case of an emergency. Any more than that, and you lose out on higher yields you could get by investing in something more lucrative.

Key Takeaways

  • If you find yourself with an extra $50,000 on your hands, make sure your high-interest debt is paid off first. Afterward, check that your emergency fund is sufficient and your retirement savings are on track before you invest money.
  • The stock market is a great place to invest $50,000, and purchasing individual stocks is one way to make potentially high returns, but it’s also a risky strategy.
  • Those with a lower risk tolerance might consider adding mutual funds, index funds, or exchange-traded funds to their investment portfolio.
  • If you have enough money for a down payment, you can invest in real estate rental properties. Or alternatively, you can skip the extra work and put some money in real estate investment trusts.
  • Financial advisors can give you some independent financial advice if you need a little help deciding what to do with $50k.
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