How to Invest 50k Wisely in 2020
So, you want to know how to invest 50k. Well, you're in luck, because there are plenty of ways to do that.
It not as simple as looking where to invest 50k, it really depends on your situation, as I'll explore more later on.
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 best ways to invest 50k in 2020.
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 an interest rate of roughly 1%, although this fluctuates.
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 in Stocks (Best Way to Invest 50K)
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.
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 40 years old you should have roughly 85% of your money invested in the stock market to get the best results.
The old rule used to be to start with 100 and take your age from that, but over time that number has changed to 125.
For example, if you were 40, you would only have 60% of your funds in stocks, with 4o% in bonds. These numbers are far too conservative and are no way to build wealth.
Anyway, there are a few different ways to invest in the stock market, as I'll explain below.
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.
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, or you can get a free stock by signing up below.
Keep reading to learn about full-service stockbrokers.
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.
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.
One of the most popular Robo-advisors today is called Acorns, which has over 3,500,000 users.
We believe Acorns is the best Robo-advisor available.
Acorns is great for college students—who can setup an Acorns Core account for free with a valid .edu email address.
This app is great for the passive investor, someone who wants to buy stocks but doesn’t want to manage their own portfolio.
Before Investing with Acorns
Acorns charge fees of $1-3$ a month, which will add up if you only invest money with round-ups. You should only use Acorns if you plan to make lump sump investments on top of your round-ups.
If you’d rather invest a lump sump and forget it, I’d go with Webull instead.
3. 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.
4. Invest 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:
5. 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.
6. 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.
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 you can get two free stocks when you invest $100 or more with Webull below.