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The Best Way To Invest 10k 📈

Are you looking for ideas on how to invest 10k? Curious about the best way to invest 10k in 2020? In this article we’ll walk through 5 investment options for people that have $10k to put to work. Having a windfall or large chunk of money to invest can feel like a good news bad news situation (okay mainly good news!).

Good news: You’re in the fortunate position that you have $10,000 available to invest! 🥳
Bad news: You’re not sure how to invest it 😬

Let’s talk through five of the best ways to invest $10k.

How To Invest $10k | 5 Ideas 💡

#1: Invest in a Target Date Mutual Fund ✔️

We love target date funds (aka life cycle funds) because they are easy, inexpensive, and give you ownership in numerous stocks and bonds.

What is a target date fund?

A target date fund is a mutual fund that owns shares of hundreds of stocks and bonds. The unique thing about target funds is that they adjust your asset allocation depending on when you plan to retire (aka they do the work for you… you can set it and forget it so to speak).

For example, someone in their 20’s or 30’s has many years left to live and generally wants to be invested primarily in stocks as they provide superior financial returns over the long term. Someone in their 50’s or 60’s generally wants a smaller allocation in stocks; while stocks provide the best returns over the long term they are more volatile in the short run.

Instead of having the figure out how much you should have allocated to stocks and bonds, the target date fund does it for you. And as you get closer to that retirement date it updates the allocation so you’re always in a good spot. It’s an awesome product and makes investing much simpler and easy to manage.

PROS ✔️

  • Instant diversification across companies, locations, and debt/equity
  • Low expenses
  • Liquidity (you can sell your shares if you need the money)
  • Asset allocation becomes more conservative as you approach your retirement date

CONS ❌

  • May be too conservative for some investors

Who are target date funds good for?

  • Investors that want a hands off solution to get exposure to stocks and bonds while maintaining suitable allocations to stocks and bonds

Vanguard | Our favorite target date fund manager

Vanguard has a reputation for excellent products and service with very low fees and expenses. They are the gold standard when it comes to index fund and target date funds. Vanguard has target date funds that go in five year increments and have an option for people of all ages.

Betterment and Wealthfront are two other options lots of younger people have flocked to are are good options as well. We compare them here.

How to select the right target date fund?

Easy! Simply select a fund that most closely matches when you expect to retire. For example if you’re 30 in the year 2020 and plan to retire around age 60 you’d want to select the Vanguard 2050 fund. Here are links to Vanguard’s target date funds:

2040 Fund
2045 Fund
2050 Fund
2055 Fund
2060 Fund
2065 Fund

How to invest in a target date fund?

You can purchase a Vanguard target date fund from a wide variety of brokerages. E-Trade, Schwab, Fidelity, Betterment, Wealthfront, and lots more. From there it is pretty simple:

  1. If you don’t have a brokerage account you’ll first need to set one up
  2. Once the brokerage account is set up you’ll need to transfer your $10k into the account
  3. Invest! Search for the ticker (e.g. VFIFX for the Vanguard 2050 fund) and buy shares in the fund

Bonus Idea: Feeling lazy?!? 🎁

Meet The Lazy Portfolio. This investment strategy requires a touch more work than a life-cycle fund (like a few minutes more work) but given it is called the lazy portfolio we promise it’s very easy. The skinny on the lazy portfolio is that you can construct a super simple and low cost portfolio of three funds that outperform the vast majority of fund managers.

It’s called the lazy portfolio because of how easy it is (thanks captain obvious 👍). It’s one of those rare times in life where being lazy pays off!

What is the lazy portfolio? 

  • Grounded in index funds
  • Passively managed
  • Low on fees
  • Simple
  • Diversified
  • Accessible to everyone

If it’s good enough for Warren Buffett it’s good enough for most people (read the article to understand what I mean!).

#2: Invest in Real Estate (Passive) 🏢

What’s another great choice for how to invest 10k? Real estate!

Real estate investment is highly compelling option when thinking through the best way to invest $10k. Some of the greatest wealth in the history of mankind has been built via real estate.

What is passive real estate investing?

Passive real estate investing means you own real estate but are not responsible for any of the management. You’ll be considered a Limited Partner (LP). It is similar to being a shareholder of a stock; you are an owner and are entitled to a share of the profits.

PROS ✔️

  • Potential for both income and appreciation
  • Easy and convenient; none of the landlord issues (e.g. evictions and dealing with clogged toilets) active real estate investors face
  • Tax benefits; real estate offers numerous tax benefits to investors

CONS ❌

  • Liquidity; many funds have a lock up period meaning you can’t quickly withdraw your money

Who are real estate funds good for?

  • Investors that want a hands off solution to get exposure to the real estate markets.

Fundrise | Our favorite target date fund manager for smaller investors (investing $50k or less)

Fundrise allows individuals to own a share of number of real estate projects. They’ve served over 100,000 investors and you can get started for as little as $500.

If you are investing all $10k into Fundrise I’d be partial to the ‘Advanced’ tier given the increased diversification.

how to invest 10k fundrise

Origin | Our favorite target date fund manager for larger investors (investing $50k or more)

Origin Investments is another great option for passive real estate investors. They have a great track record and invest their own money along side you versus just making money off of fees.

How to select the right passive real estate fund?

We could write an entirely separate post on this but here are a few things we like to see in a passive real estate fund:

  • Reasonable fees
  • Diversification (i.e. your investment goes into multiple projects versus just one)
  • Conservative leverage (look for LTV of 60% of less)

One other passive real estate option to look at is a publicly traded REIT. There are pros (liquidity) and cons versus Fundrise or Origin (often times lower returns) but it is certainly another good option to consider. Vanguard makes a nice product in this space with low fees.

How to invest in a passive real estate fund?

Opening an account on Fundrise or Origin is a snap. Create a profile, select your investment, and invest.

If you want to invest in a REIT (we recommend Vanguard) you can simply purchase shares through your brokerage account (Vanguard, E-Trade, Fidelity, Schwab, etc).

#3: Invest in Real Estate (Active) 🏘️

The other option in real estate is to buy and manage your own property. For investors that feel comfortable selecting and managing a property this is a strong option.

What is active real estate investing?

Active real estate investing means you (the investor) purchases a property to buy for the purpose of generating financial returns.

PROS ✔️

  • Control; you know exactly what you are investing in and control all aspects of the property
  • Cash flow plus appreciation potential
  • Tax benefits

CONS ❌

  • May be too hands on for some investors

Who is active real estate investing good for?

  • Someone who is ‘house hacking’; this means you buy a duplex and live in one half and rent out the other
  • Investors who know how to swing a hammer and don’t mind doing light repairs

Biggerpockets | Our favorite resource for learning about active real estate investing

You can learn so much from Biggerpockets.com… they are my go to source when it comes to investing in real estate. The podcasts are phenomenal and the forums answer every possible question you could ever have.

How to select the right investment property?

There is a lot that goes into selecting a good investment property but the single most important aspect to me is knowing your numbers.

The last thing you want to do is tie up your money and deal with being a landlord only to lose money each month.

Get a firm handle on what you can charge for rent as well as your costs. You need to have a good understanding of your projected monthly mortgage payment, utilities, repairs, etc. You’ll want to ensure the rent more than covers your monthly expenses.

How to invest in a target date fund?

You can purchase a Vanguard target date fund from a wide variety of brokerages. E-Trade, Schwab, Fidelity, Betterment, Wealthfront, and lots more. From there it is pretty simple:

  1. If you don’t have a brokerage account you’ll first need to set one up
  2. Once the brokerage account is set up you’ll need to transfer your $10k into the account
  3. Invest! Search for the ticker (e.g. VFIFX for the Vanguard 2050 fund) and buy shares in the fund

#4: Invest in your education 🎓

Investing in yourself is another potential option that could lead to both financial and happiness returns. This could be as little as taking a workshop or seminar or as much as going back to school. Investing in yourself is very powerful and can be a true life changer.

PROS ✔️

  • Investing in yourself often leads to richer experiences and more happiness
  • You’ll learn new skills and meet new people increasing both your marketability and network

CONS ❌

  • Be mindful of falling into the trap of thinking you need more and more training before doing. We’ve seen some people participate in lots of seminars and workshops but never really put anything into action. At some point you need to become a doer and take action.

#5: Start a business 🚀

My personal favorite answer to the question ‘how to invest 10k?‘ is to start a business. Each situation is different but for many people I find this is the best way to invest 10k.

PROS ✔️

  • Financial upside. For example, I started my business with $5k and it grew to be a multi-million dollar business. If interested you can read all about it here.
  • Real world learning. If you follow Tim Ferriss you may have heard of him talk about the concept of a real world MBA. The thinking is you put money you had earmarked for education into investing in or building businesses. Even if you fail you’ll still learn something and acquire a network which should payoff down the road.

CONS ❌

  • May be too risky for some investors

Businesses you can start with $10k:

  • Amazon FBA: Read this post for how to start your Amazon business.
  • Direct-to-consumer products: A DTC business has many similarities as an Amazon business. You source product and sell it online. But instead of selling on Amazon’s platform you sell on your own Shopify site. Customer acquisition is typically done through social media (think influencers, paid Facebook ads, etc). Like Amazon, this can be a very lucrative business and many recent business darlings follow the DTC model (e.g. Away Luggage, Casper, Untuckit, 23andme).
  • Blog: You can start your blog for less than $100 and have the potential to grow it into a 7 figure business. Read everything about starting a blog here.
  • SAAS: A software-as-a-service business is a beautiful thing as have recurring revenue. Unlike physical products where most people buy once and are done, in the SAAS model your customers pay you ever month. You could hire an engineer and pay for some marketing with your $10k.
  • Chrome Extension: You’ve probably never ever considered the fact that you can make big money with a Chrome Extension. Did you know that Honey, a company primarily known for their Chrome Extension, was recently acquired for $4 billion?!? There are opportunities a plenty for Chrome extensions.

High-Interest Savings Accounts | How to invest 10k temporarily 💵

Often times there is a time lag from when you have the 10k in your account and when you’re ready to invest it. Make the most of those dollars by keeping them in a high interest savings account while you wait to invest.

High Interest Savings | A smart place to park your cash

A great place to keep your cash while you wait to deploy it is in a high-interest savings account. You can earn 10x the interest of a normal checking account and have the same FDIC protection. It is a no-brainer to keep your idle cash in a high interest savings. What are some good options for high interest savings?

High Interest Savings Account Options:

  • Your current brokerage: If you already have opened a brokerage we’d suggest you look there first. Most people prefer having a simplified approach versus having a separate account for your checking, brokerage, and high interest savings. Brokerages like E-Trade, Betterment, Robinhood, and Wealthfront all offer compelling high-interest savings options.
  • Ally: We love Ally. They have competitive rates and an easy to user interface. If you don’t have an existing option for a high interesting savings we strongly suggest Ally.

The Best Way To Invest 10k Depends On Your Financial Situation & Goals 🤓

Let’s make one thing crystal clear: it is impossible to definitively state the best way to invest 10k in a vacuum. Your financial situation and goals dictate what will make the most sense so there is no one size fits all answer.

Investing $10k without considering your financial health and goals is a mistake

The ideas above represent some great options on how to invest 10k. But again, any financial decision shouldn’t be made in isolation. You need to look at your financial health and goals. What are some factors that may change how you invest 10k?

Factors that may change how you invest:

  • Credit card debt: If you have high-interest credit card debt it would be much smarter to pay off the debt than invest in any of the options above.
  • Student loan debt: Likewise, unless you have a very low interest rate, paying off student loan debt likely makes more sense than investing.
  • Job loss: If you just lost a job it may make much more sense to keep the $10k in a high interest savings than investing it. You may need that cash to pay your bills and survive.
  • Current asset allocation: If you currently have all your assets in real estate it wouldn’t make sense to invest more with Fundrise or Origin. Instead you’d be smarter getting diversification into stocks and bonds via a target date fund.

Hopefully you can see there is no one size fits all approach. In fact, investing the $10k might actually be a bad thing if you have existing debt or face a cash crunch. Consider your current financial health as well as your investment goals and objectives and then you’ll be well suited to make a call on how to best invest 10k. Note the standard disclaimer applies: this is not investment advice and your should consult a financial professional before investing.

Good luck and happy investing!