Imagine this: you just received or saved $20,000, but you’re not sure what to do with it. You can spend on a luxurious holiday or a new car, or you can invest wisely in setting yourself up for future financial security. So let’s find the best way to invest $20k!
This article discusses ideas for different investment strategies that suit different financial goals, investment time perspectives, and risk tolerance levels.
You can better understand the various investment options available when you are trying to understand what to do with 20K. They also discover how they approach their benefits, risks, and decision-making processes.
So, without further ado, let’s explore what to do for $20,000!
A short-term strategy to invest $20,000
Short-term investment strategies are designed for those looking to invest for up to two years.
If you want to save on certain goals, they are great options.
For example, if you’re saving for a down payment, wedding or holiday at home.
Short-term investment strategies are also great for building emergency funds.
Some common examples of short-term investments are:
- High yield storage account
- Money Market Fund
- Peer-to-peer lending
High-yield savings account
If you’re looking for a safe and easy way to invest $20,000, a high-yield savings account might be the way to go.
A high-yield savings account is like a regular account.
However, the interest rates are high and you can earn more money over time.
However, unlike other investment options, there is no risk of losing money due to market fluctuations.
However, you need to make sure your high-yield savings account has FDIC insurance. The federal government protects cash up to $250,000 for each depositor, per ownership category, per insurance bank.
This is why high-yield savings accounts are a common option for short-term investment strategies. I personally have some of the short term savings on this account type.
They are a low-risk, low-stress method to gain interest in your money without tying it for a long time.
Money Market Fund
When it comes to short-term investments, money market funds are an attractive option for those who want to make the most profit possible over traditional savings accounts.
A money market fund is a type of mutual fund that invests in short-term and low-risk securities. It includes assets such as government bonds, certificates of deposits, commercial paper and more.
Another advantage of money market funds is that they usually have quick and easy access to funds. However, this is not usually true of long-term investment strategies.
So, if you’re looking for low-risk, low-volatile investments that offer stable returns, then a money market fund might be the best way to invest 20k to achieve your financial goals.
Peer-to-peer lending
When it comes to short-term investment strategies, peer-to-peer (P2P) lending is an innovative option. It offers a unique combination of high returns and low risk.
P2P lending directly connects borrowers to investors without the intermediary financial institution.
In other words, you become a “bank.”
By reducing Middleman, P2P lending allows investors to earn higher returns than traditional savings accounts.
Plus, you can choose who to invest and easily put your money in a place that’s worthy of you. That being said, when it comes to P2P lending platforms, it remains very important to do research to determine whether this is the best way to invest 20k.
Medium-term investment strategy to invest $20,000
Medium-term goals and investment strategies are suitable for those looking for the best way to invest $20k for 2-5 years.
This is a good strategy for saving your child’s education and starting a business.
Some common examples of medium-term investments are:
- CD
- Robo Advisor
- Index funds
- Mutual funds
- Funds traded on the exchange
- REIT
CD (Report of Deposit)
A CD, or certificate of deposit, offers a secure, low-risk investment option with guaranteed returns on medium-term financial goals.
A CD is a deposit account that usually offers interest rates set for a specific period, such as six months, one year, or two years.
Like high-yield savings accounts, one of the main benefits of CDS is that they are FDIC insurance.
CDs also offer higher interest rates than you would find in a traditional savings account. It makes a good option for them for those who want to make more money on their investments.
Banks also guarantee interest earned regardless of inflation volatility.
This is good for those looking for guaranteed investment returns over a certain period of time. You can also check out other ideas for the best compounded investments.
Robo Advisor
With a user-friendly platform, a diversified investment portfolio and 24/7 access to investments, robo-advisors offer a convenient and cost-effective way to increase your $200,000 investment.
Unlike traditional brokerage companies, robo-advisors are digital investment options that offer automated investment management services.
Create and manage personalized investment portfolios based on short- and long-term financial goals, risk tolerance, and investment timelines using complex algorithms.
Additionally, Robo-Advisors eliminates the need for traditional financial advisors (usually charge high fees for services), allowing you to access professional investment management services at some cost.
As an additional perk, robo-advisors are designed to create a balanced investment portfolio across a variety of asset classes. This can reduce risk and increase returns.
Index funds
With a variety of investment options and high transparency, index funds are reliable and proven ways to invest $200,000 for interim purposes.
The best index funds are the aggregation of stocks, bonds and other securities. Track your index according to your index fund, such as the S&P 500 index.
When investing in index funds, you have access to a variety of investment options. It helps to broaden your investment risk and maximize returns.
Furthermore, because they are passively managed, index funds are known to have significantly lower fees than mutual funds. Still, index funds can provide extremely strong investment returns over time.
Furthermore, the prevalence of index funds is high. Whether you’re looking for a more aggressive investment strategy, whether you’re looking for a conservative, low-risk investment option, there are funds that can meet your needs and be the best way to invest 20K.
Mutual funds
Unlike index funds that are passively managed, most mutual funds are actively managed by dedicated mutual fund managers.
Once you learn how to start investing in mutual funds, cash is pooled along with other investors’ money and invested in a variety of assets, such as stocks and bonds. You must check out and open your brokerage account to get started.
Mutual funds are one option to understand what to do with 20K if you want to work with a mutual fund manager. However, keep in mind that mutual funds come with far higher fees than index funds and ETFs. Ultimately, these charges may be reduced to your return over time.
Exchange traded funds (ETFs)
With low fees, flexibility, ease of access, transparency and the possibility of long-term capital appreciation, ETFs can provide you with a reliable investment strategy that aligns with your financial goals.
In some ways, ETFs are similar to mutual funds. ETFs and mutual funds are collections of securities that can offer the benefits of diversification and risk management.
However, ETFs are traded in exchanges like stocks, so they can be bought and sold at market prices throughout the trading day.
Compared to aggressively managed mutual funds (requires professional management and research), ETFs are usually passively managed. As a result, their management fees are much lower and they can maintain more returns.
Furthermore, investments in ETFs’ diverse portfolios can minimize the risks associated with individual securities and market volatility, and thus may achieve stable revenues over the long term.
REITS (Real Estate Investment Trust)
If you want to invest $200,000 in medium-term objectives that provide normal income and capital gains (and it’s perfect for real estate beginners), investing in real estate investment trusts (REITs) is a great option.
REITs are owned, operated and/or funded real estate, including shopping centres, office buildings, apartments, hotels, etc.
By investing in REITs, you can be exposed to the real estate market without having to buy and manage physical properties.
Importantly, investing in REITs allows you to invest in a variety of property types and geographical regions, diversifying your portfolio and minimizing risk.
Above all, REITs are required by law to give shareholders at least 90% of their taxable income as dividends, providing investors with a reliable source of income. So, if you are trying to build a passive income stream, REITs may be the best way to invest 20k to achieve your financial goals.
An online investment platform designed to help individuals invest in real estate and venture capital without any major fees, whether they purchase REIT ETFs directly through their brokerage accounts, use tools such as Fundrise, or to help individuals invest in real estate and venture capital at no large fees.
Long-term strategy to invest $20,000
A long-term investment strategy is the best way to invest $200,000 over five years. If you are trying to build long-term wealth, such as saving for retirement, those are great options. According to the IRS, the new contribution limits for IRAS and 401K for 2024 are listed here.
Some common examples of long-term investments include:
- Resignation account
- real estate
Traditional IRA
Traditional IRAs allow individuals to donate pre-tax dollars.
Money will then be taxed until you withdraw at retirement, which is taxed at your personal tax rate. That’s an advantage as you are more likely to be in a lower tax range when you’re a retiree than when you’re a professional you work for.
Roth Ira
The Roth IRA allows individuals to donate post-tax dollars. That means there is no tax credit.
However, investment income is increasing tax-free, and withdrawals at retirement are also tax-free.
401 (k) Resignation account
This is an employer-sponsored retirement account where employees can add a portion of their pre-tax income.
Some employers may match some of their contributions with 401K matching. Money will be taxed repeatedly until you withdraw at retirement. There, you will be taxed as normal income.
Other types of retirement accounts include:
Investing in a retirement account is a wise choice for long-term financial planning.
Retirement accounts offer tax benefits, the power of compound interest, various investment options, and the opportunity to plan your future.
Additionally, learning how to start saving for retirement will help individuals build comfortable nest eggs that last decades and ensure financially safe retirement.
real estate
Real estate offers the potential for valuation in value, passive income for real estate, various investment strategies, hedging against inflation, and greater control of investment.
It is a tangible asset that has the potential to be grateful over time. You can see investments increase as your assets increase in value through real estate investments.
Treating real estate as a rental property will help you earn steadily and ongoing passive income. Alternatively, you can turn the property upside down for quick profits.
Another real estate investment strategy is to buy a home and hold it as an asset until high value allows you to invest in more valuable assets. Inflation can be a viable strategy as it promotes not only the cost of goods and services but also the value of the property.
Other ideas to invest 20k? Think outside the box!
Do you want to be more creative by finding the best way to invest $200,000? If so, your route might be to pay off your debts and invest in education.
Let’s explore these ideas a little more.
Pay off credit card debt
When you are in debt, you are essentially paying someone else for the privilege of borrowing their money. Unfortunately, that interest can really increase over time.
So, by using $20,000 to stop paying credit card debt, you can save a significant amount of money on paying interest in the long term.
Paying off your debt can also improve your credit score and have a positive impact on your financial life.
A higher credit score will qualify for low interest rates on future loans, credit cards and mortgages, saving you even more money in the long run.
And we will repent if we do not realize that paying off our debt is a gift that will continue to give.
why? When you pay off your debt, you give more money towards other financial goals, such as freeing up cash and dealing with yourself in investments, savings, and even special things.
Make student loan payments
Understanding how student loans work is complicated. Once interest is combined over the years, you often have to pay back much more than you initially realise.
If you have a lot of money on student loans, this may be the best way to use that extra $20k!
Whether $200,000 is enough to cover all your student loans, removing or minimizing monthly student loan payments makes it much easier to manage your biweekly or monthly budget.
Invest in your education
For $20,000, you can pursue additional education, such as university degrees, trade schools and other professional training.
Education can open new doors and opportunities for your career and increase your profitability in the long term. So, if you’re thinking about what to do with $200,000, investing in today’s education could mean endless returns tomorrow.
Investing in education can also have a positive impact on personal growth and development. It broadens your horizons and challenges you to think differently and expose you to new ideas and perspectives. Ultimately, education can help you become a more rounded and fulfilling individual – professionally and personally.
Save for your child’s education
If you have children, another great way to plan for your future is to start saving for your child’s college education. Even if your child is still younger, the sooner you start, the better!
One way to invest $200,000 in your child’s college education is to plan 529. This special education savings plan offers certain tax benefits that will help you save on eligible education expenses.
However, please note that only 529 plan funds can be used for qualified education payments.
So before you begin, make sure you are doing your research to determine whether 529 plans are valuable to you and your family.
Four important things to remember
Before diving into the first strategy that will catch your attention, I recommend you reflect on your goals and your personal situation.
This will help you find a strategy to start an investment that is consistent with your long-term goals in life, minimizing risk and maximizing returns.
To set the stages for choosing your investment strategy, consider the following:
1. Set financial goals
What do you want to achieve with this money?
For example, some financial goals are to save for retirement, buy a house, pay off debts, and make future investments.
Once you have set financial goals, you can help you explore the best investment options and achieve them.
2. Draw the outline of Time Horizon
Are you planning to hold your investment?
Is it a short-term savings goal (such as home savings) or a long-term goal (such as building eggs in a retirement nest)?
The duration of your investment time will affect the type of investment you choose.
3. Understand the acceptable range of risks
How much risk do you take to get a higher return?
Are the stock market ups and downs okay, or do you prefer low-risk, conservative investments?
Understanding how you avoid risks and your risk tolerance will help you choose the right investment strategy that suits your needs.
4. Diversify your investments
Even if you find the best way to invest $20k, you don’t want to put all your eggs in one basket!
Instead, consider diversifying your investment across a variety of asset classes, including stocks, bonds, real estate, and products.
It helps reduce your overall risk and potentially increase your return in the long term.
Don’t forget to do your research
Once you have determined a strategy that matches the answer to the above questions, you can investigate the options available within the particular investment strategy of your choice. For more information, check out our list of the best investment websites you can take advantage of.
There are a few important questions to consider when researching potential investments.
What is the impact of tax?
Take your time to consider, for example. Are you subject to capital gains tax or other taxes on investment returns?
Understanding the tax impact of investments can help you make smarter decisions and maximize your after-tax returns.
How has your investment been made historically?
Now, it’s time to do some research. See how your investment has worked over time. How does it compare to similar investments?
Historic performance is never guaranteed, but it can be a valuable indicator of potential future returns.
How is your investment managed?
Who manages your investments? Importantly, what are their track record?
Do they have a clear investment strategy? Are they consistent with your financial goals?
Before deciding what to do with 20k, see what kind of manager your investment has and who will manage it.
What are the company’s corporate values ​​and social impacts?
Is the company behind the investment clearly committed to social responsibility and sustainability? Do their values ​​match your own? Do they have a positive impact on society and the environment?
Choosing an investment that supports your value will help you protect your peace of mind and improve the world.
Is there an investment fee?
What are the fees related to your investment? How do they compare to similar investments?
Don’t forget that high fees can reduce overall profitability.
What do market trends and indicators look like?
What is the current state of the market?
In other words, understand the difference between bears and bull markets.
How will this affect the investment you are considering? Are there any potential risks or opportunities you should know?
As always, research all the potential risks before deciding on how to invest $200,000.
Expert Tips: Starting a Business is the Best Way to Invest 20k
If you’re trying to figure out what you need to do to grow your 20k, you can use this money to start a business or side hustle. If you’re not sure where to start, there are a variety of ideas for side hustles.
You can make money or become a graphic designer. Maybe you might consider starting a cleaning business or learning about freelance marketing.
You may not want to pour all your savings into a side fuss or start a business, but you can choose to use some of it.For example, you can use some of your savings to pay for your equipment and take courses on how to start a business. If you’re looking for new revenue stream ideas, it could prove to be profitable in the long run and profitable.
What can you do with 20k to make more money?
If you want to start making more money using 20k, one of the best things you can do is to build a passive income stream.
For example, you can start a side hustle and start a business that can ultimately run with minimal input, or invest in real estate, stocks, bonds, or other assets.
Is $20,000 worth investing in?
$20,000 is a significant amount to start investing! If you want to keep things simple, consider investing $200,000 in a three-fund portfolio, a lazy portfolio. That said, you can learn how to start investing with just a little bit of money.
What’s the best thing to invest $20,000 in the long run?
There is no best investment in the long run. Rather, your best $200,000 investment depends on your own financial goals and risk tolerance.
One popular option for many people is investing in real estate, dividend stocks, and/or bonds from brokerage companies.
What is the best way to invest in a 20k short term?
If you want to have easy access to your investments in the short term (i.e. within five years), you should consider a very liquid investment, such as a high-yield savings account, CDs, ETFs, or money market funds.
Above all, you’ll want to avoid non-liquid (or illiquid) assets, such as real estate, collectibles, and other intangible assets.
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The best way to invest $20k depends on you!
Investing $20,000 is a sensible way to set yourself up for future financial stability.
By taking your time and carefully considering your financial goals, investment time horizons, and risk tolerance levels, you can choose the investment strategy that suits you. It’s not the same for everyone.
Whether you choose stocks, bonds, real estate or other investment vehicle, it is essential to research, inform and make thoughtful decisions to your personal core values ​​and goals.
So, using the knowledge and tools you learned here, you will make an informed decision on the best way to invest $200,000. In particular, don’t forget: Getting early and commit to your goals is key to accumulating wealth.