How to Invest 50k: 9 Ways to Increase Your Money's Value
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So, you want to know how to invest 50k. Well, you're in luck, because there are plenty of ways to do that.
It's not as simple as looking where to invest 50k, it really depends on your situation, as I'll explore more later on. It's important that you know how to invest 50k wisely because this is no small sum.
It's also essential that you know how important investing is to wealth-building over time, which I'm going to explain later on.
Now, if you only have $1000 dollars to invest, you won't have much room to diversify. But, you have $50,000 which means you're going to want to diversify your funds to get the best results.
It's not enough money for you to able to own all kinds of investments from stocks to vintage cars, but it's enough that you need to spread out your investments a little bit.
Here are the nine best ways to invest 50k and increase your money's value.
1. Hold Cash in a Money Market Account
A money market account is a great place to keep your cash while you are waiting to invest it. A money market account is like a checking account, but more restrictive.
You will have a limited amount of withdrawals you can make a month. To counter this, money market accounts offer higher rates of interest compared to checking accounts.
One of the best places to stash your cash is CIT Bank, their money market account offers a competitive interest rate.
If you sell a stock, it's a good idea to put your cash in a money market account until you plan to buy again. This allows you to earn some interest while you are waiting to buy again.
2. Invest 50k in the Stock Market
The stock market should make up the majority of your entire investment portfolio, as it offers some of the highest rates of return.
You'll need to invest in stocks if you want to eventually live off dividends.
Whether you're looking to invest in your 20s or even your 50s, investing in the stock market is a great way to build wealth over time.
The aim of stock market investing is to grow your money, while investing in bonds or a money market account are ways of preserving your money.
Keep this in mind as we go on.
To work out how much you should have in stocks, take 125 – your age and that is the % of your portfolio that should be in stocks.
For example, if you're 25 years old and want to invest in stocks, 100% of your funds should be in stocks.
If you're 40 years old, you should have roughly 85% of your money invested in the stock market to get the best results.
Anyway, there are a few different ways to invest in the stock market, as I'll explain below.
Mutual Funds (Professionally Managed Fund)
Investing your money in a mutual fund is a great hands-off way to grow your money.
A mutual fund is an investment vehicle where money is pooled from investors to invest in securities like stocks, bonds, and other assets.
Mutual funds are operated by professional money managers who often have advanced degrees in finance and economics. The manager, along with their team of analysts, allocate the fund's assets to attempt to produce capital gains and or income for the fund's investors.
Mutual Fund Fees
According to Morningstar, the average large-cap fund with assets greater than $5 million has an expense ratio of 1.45%.
For example, if you invested $50,000 in an average large-cap fund, you would have to pay $725 in fees annually. This is a small price to pay for your peace of mind, knowing that your money is managed by a professional.
Best Mutual Funds
Typically the Large Growth mutual funds offer the best long-term returns. Dave Ramsey recommends investing 15% of your after-tax income in mutual funds to build wealth long-term.
Here are three of the largest mutual fund companies in the US:
- BlackRock Funds (iShares)
- Vanguard
- Charles Schwab
Exchange-Traded Funds (ETFs)
You could also invest through an Exchange-Traded Fund (ETF). ETFs are similar to mutual funds in that they allow you to purchase a group of stocks in one location.
I'd recommend the iShares Core S&P 500 ETF above any other actively or passively managed fund. They purchase all of the stocks in the S&P 500 index, with annual fees of just 0.03%.
Investing in this fund is the best way to grow your money with minimal effort or investing know-how.
You can purchase this ETF through a discount broker like Webull, as I explore below.
Discount Brokers
Investing in the stock market through a discount broker is a great way to invest without spending a lot on fees.
You can buy stocks, bonds, ETFs, options, and futures through a discount broker.
Investing with a discount broker is a great way to invest money if you don’t require investment advice.
It’s cheaper to trade through a discount broker than a full-service broker, but they still charge fees. These fees typically range from 0.12% to 2% per trade depending on who you're with.
Discount brokers are best suited to people who trade regularly, don't need investment advice, or have small portfolios.
The Best Discount Broker
My favorite discount broker is Webull.
Webull is a commission-free trading platform that gives you the tools you need to analyze and buy stocks.
This makes Webull a great option whether you’re new to investing or an experienced trader.
Webull specializes in stocks, options, and ETFs.
Read our Webull review if you'd like to learn more about the platform.
Keep reading to learn about full-service stockbrokers.
Full-Service Brokers
Another way to invest in stocks is through a full-service stockbroker.
Full-service stockbrokers are a bit different from discount brokers and they do more than facilitate the buying and selling of securities.
Full-service brokers are a better option for investors who need professional investment advice.
They are more expensive, however. Full-service brokers typically charge 1-2% of the total assets managed annually.
Buying stocks through a full-service broker is probably the best way to invest 50k if you don't know much about stocks.
Robo-Advisors
Investing 50k with a Robo-advisor is a great way to gain exposure to the stock market as a new investor,
A Robo-advisor is a software-based algorithm that acts as your personal portfolio manager.
The Robo-advisor will automatically pick your investments, diversify your funds, and adjust your portfolio over time. These changes are all based on your chosen long-term investment goals.
The Best Robo-Advisor
My favorite Robo-advisor is M1 Finance.
M1 Finance allows you to easily invest in stocks and ETFs without personally managing your investments.
First, you select your investments and your allocations, then the platform automates your entire portfolio!
The platform has 80 “expert portfolios” or pies to choose from. These pies allocate your money depending on your individual investment goals.
M1 Finance has become the go-to platform for automated investing. You can find my M1 Finance review here if you want to learn more about the platform.
3. Invest 50k in a Real Estate Investment Trust (REIT)
You don’t need hundreds of thousands of dollars to start investing in real estate. $50,000 is more than enough to get started.
Investing 50k is a great way to make some passive income from dividends while investing in the property market.
You can purchase shares in a REIT mutual fund or an Exchange-Traded Fund (ETF). Over 80 million Americans or roughly 40% of America’s households own REITs.
REIT shares are priced by the market throughout the trading day, like all companies that are publicly traded.
What Drives REIT Growth?
REITs will typically increase in price when their earnings increase. Higher revenues, lowering costs, and opportunities to purchase assets all cause growth in REIT earnings.
Some major factors that affect REIT revenue specifically are building occupancy rates, increased rent, and property acquisitions.
Some REITs to Invest In
Here are some of the largest and most well-known REITs for you to consider:
4. Pay Off Debt
I bet you didn't expect paying off debt to be in an investing article, but hear me out.
Having debt is basically the opposite of investing. You are paying interest back to your lender—when you should be earning it!
You can expect to earn about 7% annually through the stock market, while you could be paying double-digit interest back to your lender!
This is why so many financial gurus like Dave Ramsey recommend paying down non-mortgage debt before investing for retirement.
You have 50k to invest, so you will probably have more than enough money to pay off any high-interest debt before you start investing.
5. Max Out Your Emergency Fund
You should always have an emergency fund, no matter how big your investment portfolio is. Your emergency fund is there so you can cover any significant unexpected expenses. This could be something like car repairs or medical costs.
Having a stocked emergency fund is a great way to maintain peace of mind.
Dave Ramsey recommends that you start small and aim to hit $1000 in your emergency fund. Eventually, you want to have enough money in your emergency fund to cover 3-6 months of expenses.
Having an emergency fund stops you from needing to sell your investments to fund any unexpected expenses.
For example, if you had $100,000 in stocks and $100 in cash, what would you do if your car broke down? You would either put it on your credit card (yikes) or be forced to sell your stocks.
This can be even more painful if your stocks are in the red.
You should stock up your emergency fund before you even think about investing to build wealth.
6. Max Out Your 401(k)
Another way to deal with this money that you have come into is to increase your 401(k) contributions.
Contributing to your 401(k) is a great idea if you’re happy to lock your money away until retirement.
You won't be able to invest 50k directly into your 401(k), but you will be able to contribute more from your salary now that you have a cash cushion.
A 401(k) has an annual contribution limit in 2020 of $19,500, or $26,000 if you are 50 or over.
You can withdraw from your 401(k) penalty-free after the age of 59 and 1/2, which will be a while away for most of you.
Investing through a broker or Robo-advisor might be a better decision if you want to be able to access your funds at any time, without penalty.
Advantages of Maxing Out Your Retirement Accounts
There are two main advantages of maxing out your 401(k)
Firstly, you can contribute to your 401(k) with pretax dollars, this effectively reduces your taxable income for the year.
You will have to pay taxes once you withdraw the money at retirement, but you can pay less tax right now.
Secondly, employers will typically match your 401(k) contributions up to a certain dollar amount or percentage of your overall income.
Whatever the match is, it’s free money that you’ll be able to spend in retirement.
Don’t leave money on the table, take advantage of employer matching.
7. Open a Roth IRA
Opening a Roth IRA is a great way to invest 50k for your retirement.
A Roth IRA is a type of retirement account that you fund with post-tax income. You are free to withdraw any contributions you have made tax-free, but you may have to pay taxes on earnings.
You have more control over a Roth IRA than you have with an employer-sponsored retirement account.
When Should I Open a Roth IRA?
You should open your Roth IRA early when you are young and in a low tax bracket. This way, you'll be able to pay minimal taxes while contributing.
You'll have to start paying more and more money in taxes if your income increases, so it's best to get started early.
Roth IRA Contributions
You can contribute a maximum of $6,000 to your Roth IRA ($7,000 if you are age 50 or older by the end of the current year) if you're single or the single head of a household.
This is predicated on you having a modified adjusted gross income (MAGI) of less than $122,000 annually.
Remember to open your Roth IRA as early as possible to get the maximum benefit.
8. Invest in US Treasury Bonds
What is the purpose of bonds? Well, bonds were traditionally a counter to stocks. During a recession, people generally sell their stocks and buy bonds instead—pushing their prices up.
U.S Treasury bonds are a great long-term, secure investment that will provide you with an ongoing source of passive income.
Investing a few thousand dollars into U.S Treasury bonds might be the right choice if you want to have some more stability in your portfolio.
Savings or Treasury bonds are issued by the United States government and are some of the safest bonds you can buy. It’s highly unlikely that your loan will not be repaid.
Interest rates for bonds are not impressive, but they do make regular coupon (interest) payments. Bonds are often the number one choice among investors who want stability in their portfolio, but still want to make passive income.
If you have a fully-stocked emergency fund, you probably shouldn't invest in bonds. Your best bet is to invest in stocks to make the highest returns.
While bonds are typically safe, the type of bond you buy will influence the level of risk involved with this investment.
There are many types of bonds including, but not limited to Premium bonds, Treasury bonds, corporate bonds, and Junk bonds.
It's best to stick to US treasury bonds if you want stability in your portfolio.
9. Invest 50k in Your Kids' College Education
College is expensive and is showing no sign of slowing down.
Investing $50,000 will go a long way towards your kid's eventual college tuition.
The average cost for one year of college from 2015-2016 was $26,120, or $104,480 for four years. You could graduate with the same four-year degree in 1989 for $26,120.
So the average price for a four-year college degree increased by 2.6% annually throughout this period.
So, if you want your kids to go to college and you don't have the money ready now, you should consider saving for their college education.
The Best College Fund: the 529 College Savings Plan
If you're looking to invest $50,000 in a college fund, the 529 college savings plan is a great choice.
This plan has high contribution rates (depending on your state) and lets your money grow tax-free.
The right 529 plan will give you the option to change the beneficiary to another family member. So if your firstborn doesn't want to go to college, you can use the funds for the next in line!
What Will Happen If I Invest 50k in Stocks?
Here is a graph showing what a $50,000 investment at age 30 would look like while growing at average stock market returns of 7% until age 65.
I made this graph with a great compound interest calculator created by ASIC.
As you can see, investing $50,000 in an S&P 500 index fund at age 30 would have grown to $533,829 by age 65.
You can become vastly wealthier if you continue to invest money in index funds throughout your career.
You can achieve these results with a discount stockbroker like Webull. You can find my Webull review here.
How to Invest 50k Summary
Now you know the best way to invest 50k depending on your circumstances. From lucrative investments to safe alternatives, you have everything you need to invest 50k.
By investing the income-producing assets that I've mentioned, you are sure to build wealth over the long-term.
Don't worry if you don't quite have 50k yet, we have articles for investing smaller amounts too:
Don't forget to visit my Webull review to learn more about my favorite discount broker.
