How to Invest 10k: 7 Ways to Get Started

If you've managed to save up $10,000, it's important you learn how to invest it. Putting money in a savings account for a rainy day or emergency is one thing, but $10k is a lot of money that if you know how to invest it, could turn into a lot more money.

Knowing how to invest $10K is important so you not only get the best return but can also save for your most important goals.

The Best Ways to Invest $10k

$10,000 opens a lot of doors for investing. You can max out an IRA, invest in real estate, or put it all in the stock market. You could even invest it in yourself.

Everyone has different ideas about how to invest $10K. Here are the top ways to consider.

Contribute to Your 401k

Does your employer match your 401K contributions? Many do and if you don't contribute, it's like giving away free money. Don't let that happen.

Use some of your $10,000 to cover the 401K contributions. For example, if your employer matches 3% of your salary dollar-for-dollar and you make $80,000, contribute $2,400 and your employer will too. That's $2,400 a year in free contributions. Don't pass it up.

Max Out Your IRA

In 2021, you can contribute up to $6K in an IRA either Roth or traditional. Take advantage by opening an investment account with a broker or robo advisor. If you contribute to a traditional IRA, you'll get the tax deductions this year and if you invest in a Roth IRA, you'll contribute after-tax dollars but your contributions and earnings grow tax-free.

Open a Taxable Account

If you've maxed out your retirement accounts, consider investing in a taxable account. You don't have to be 'rich' to open one, especially if you use an online discount broker, but $10K should be more than enough to get your foot in the door almost anywhere.

A taxable account doesn't have tax advantages, but if you use the right broker, you may be able to take advantage of tax-loss harvesting techniques that minimize your tax liability. In a taxable account, you could invest in stocks, bonds, commodities, ETFs, and mutual funds.

Invest in Real Estate

If you've always wanted to invest in real estate, now's your chance. $10K is a good start for a down payment, or even investing in a crowdfunded real estate investment like a Real Estate Investment Trust.

If you want to invest in physical real estate, consider a marketplace like Roofstock where they do all the work for you including vetting the property. All you need is the money to invest, which $10K can be the start to your down payment or closing costs. You may even tap into the equity in your primary home to help with the down payment.

Increase Your Emergency Fund Savings

If you haven't maxed out your emergency fund, this is a great time. If 2020 taught us anything, it's that life is unpredictable. At least, have 6 months of expenses saved. This can see you through most emergencies including losing your job or falling ill and being unable to work.

Invest in Yourself

You probably don't think of investing in yourself as profitable, but sometimes it's the best way to invest. When you invest in yourself, you increase the possibilities of what you can do. Whether you go back to school, take online courses, or finally go after that certification you've always wanted, you'll come out of it stronger, smarter, and capable of making more money.

Start a Business

$10K is a great start to many businesses. Many businesses you can start for even less than that, freeing up more money for other investments.

Here are a few business ideas to get you started:

Start a blog and monetize it
Start a YouTube channel and monetize it
Open an online store with products you create or as a drop shipper
Become a loan signing agent

Before you decide how to invest $10K, though, make sure you're ready and able to invest.

What to Do Before You Invest $10k

Before you invest $10K, it's important to look at the big picture. Figure out how much money you have, and where you stand financially.

Focus on your emergency fund and credit card debt.

Ask yourself - do you have at least six months of expenses saved? If not, and you don't have a minimum of 3 months set aside, use some of the $10K for your emergency fund. It doesn't help to invest money only to have to frantically sell your assets or withdraw money early from a retirement fund and pay penalties. You'll defeat the purpose of investing.

An emergency fund should be a liquid account (a high-yield savings account is a great place), that you can access in an emergency but that you don't touch for any other reason. Let the funds sit and collect interest, knowing they are there for you should something catastrophic occur.

Next, check out your debt levels. How much high-interest credit card debt do you have? Credit cards with 0% APRs or low APRs (below 5 - 10%) may be okay, but any cards with higher APRs must be paid. If you invest money and leave the debt outstanding, you rob yourself of the profits.

Let's say you pay 19.99% interest on your credit card. No investment no matter how good will pay higher than a 19.99% return. Pay off your credit card debt first and then focus on where else you can save or invest the remaining funds.

Related Article | How To Start Investing As an Immigrant

Things to Consider Before Investing $10k

If you've stocked up your emergency fund and took care of your credit card debt, you're ready to invest. Before you do, consider these factors.

What Are Your Goals?

Your goals greatly affect where and how you invest. First, determine are you saving for retirement or any other goal? If it's for retirement, focus on 401K and IRAs (Roth or traditional). But if you're not saving for retirement, you have many other options, including the stock market, bonds, real estate, or real estate investment trusts. Investing in a taxable account gives you some liquidity, but you should only sell when you plan to and not because you 'have to.'

What Is Your Timeline?

Your timeline determines the aggressiveness of your portfolio. If you are saving for a goal that's 10 - 15 years away, you could take chances and invest somewhat aggressively. But, if you're investing for a goal that's in a couple of years, you'll want a more conservative portfolio to protect yourself.

Risk Tolerance

Along with your timeline, your risk tolerance is key too. If you can't handle a loss or you lose sleep at night wondering if your aggressive portfolio will leave you empty-handed today, you'll want a more conservative portfolio.

Your timeline affects this too. The sooner your 'due date' the less risk you can take and vice versa.

Investing $10k for Retirement

If you've decided to invest your $10k in your retirement, you have more decisions to make. First, as we talked about above, exhaust your 401K employer match.

If you still have money left, consider a traditional or Roth IRA.

Traditional IRA - A traditional IRA provides you with a tax deduction the year you contribute, but up to $6,000. So don't contribute the entire 10K in your IRA, but it's a good start. If you don't have an IRA yet, open one up with a robo advisor, online broker, or traditional broker. Watch the fees and make sure the broker you choose offers investments that align with your beliefs and goals.
Roth IRA - A Roth IRA requires after-tax contributions but your contributions and earnings grow tax-free. When you withdraw funds in retirement, you don't pay any taxes. In a traditional IRA, you pay taxes at your tax rate in retirement. Watch the Roth IRA income limits, though. In 2021, single filers can't make more than $140,000, and married filing joint filers more than $208,000 to qualify.

If you make too much to qualify for a Roth IRA, but you like the idea of a tax-free retirement, there's one more option - the backdoor Roth IRA. It sounds sneaky, but it just means you start with a traditional IRA and convert to a Roth IRA in the future. You'll pay the taxes on the amount you convert that year, but then your contributions and future earnings grow tax-free.

Investing for Goals Other Than Retirement

If you're investing for anything other than retirement, you have a few options.

Taxable account - Open a taxable account with an online broker, robo advisor, or traditional broker. Spread your $10K over different investments, such as stocks, bonds, commodities, ETFs, mutual funds, and real estate investment trusts.
College 529 Savings Plan - Save for your children's college education by contributing to a 529 College Savings Plan. You don't get a tax deduction when you contribute, but your earnings grow tax-free as long as you use the funds for qualified education expenses.
HSA - A Health Savings Account is a tax-advantaged account to help pay your medical bills if you have a high deductible health insurance plan. If you pay a lot of medical expenses out of pocket, it could be a good way to lower your tax liability and save on your medical bills.

Invest $10k the Right Way

Before you invest the $10K you have saved or you earned, take a step back and think about your situation? What are your goals with the money? Do you have short-term or long-term goals?

Also, look at your financial situation now. Do you need help in any areas, such as paying down credit card debt or setting up an emergency fund?

Focus your money where it needs to go first, and then find the best ways to invest in your situation. There are plenty of ways to invest and plenty of platforms to help whether you choose a robo advisor, discount broker, or invest in your company 401K.

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