Popular financial advice is that you should save up at least six months of expenses in an emergency fund so you always have cash on hand for sudden expenses. However, if you already have enough of a cushion, it’s important to put the rest of your money to work rather than sitting on idle cash.
It’s possible to start investing with little money, which is ideal if you’re new to investing. However, once you build up your savings to around $10,000, there’s a range of investment options that become available.
There’s no single best way to invest $10,000. But, with a decent chunk of cash, you can certainly start building your nest egg and set the foundation for a bright financial future.
The Best Ways to Invest $10,000
Before you jump in and invest $10,000, it’s important to consider several of your personal finance goals and overall personality. After all, $10,000 is a significant amount of money, and the last thing you want to do is invest emotionally rather than rationally.
Before deciding how to invest, take time to consider:
- Investment Goals. Are you investing for long-term goals or for an upcoming expense, like going to school or a down payment on a home? Start with the end in mind so you understand why you’re investing and what sort of returns you’re hoping for.
- Time Frame. If you’re investing for the long run, you generally have more flexibility and can tolerate volatility more than short-term investments.
- Your Risk Tolerance. Identifying your risk tolerance helps you understand which investments are suitable for your personality type and goals. Understanding your risk threshold also helps you avoid financial anxiety and ultimately pick investments that match your investing style.
- Dependents. If you have children or other dependents, your investment strategy might look different than if you are completely independent. In short, always consider how your investing choices impact your other responsibilities.
Take the time to ask yourself about these considerations and write down your answers. You can also consider hiring a financial advisor if you feel overwhelmed or face a particularly complex financial situation.
Whatever you choose, once you decide on how to invest $10,000, it’s time to put your money to work.
1. Try To Max Out Your IRA
There are several types of IRAs. However, the two most common are a traditional IRA or Roth IRA:
- Traditional IRA. With a traditional IRA, money you contribute deducts from your taxable income for that year. For example, if you earn $60,000 one year but contribute $5,000, your taxable income for the year is only $55,000. You pay income tax on money you withdraw from a traditional IRA, and you begin withdrawing money at 72 due to required minimum distributions, or RMDs.
- Roth IRA. Unlike traditional IRAs, you pay tax on the money you contribute to a Roth IRA. However, contributions that grow in your Roth IRA are tax-free, and you don’t pay income tax when you withdraw money in retirement. This helps prevent your taxes going up during retirement and lets compounding interest get the most mileage for your investments.
Both traditional and Roth IRAs are ultimately excellent vehicles for investing $10,000 because of their tax benefits.
As for your specific investments inside the accounts, you have flexibility. Many investors choose traditional securities like individual stocks, mutual funds, and exchange-traded funds (ETFs). IRAs are tools to save for retirement, so it makes sense for most people to stick with traditional investments rather than alternative IRA investments that are more speculative.
If you want to open an IRA account, you have numerous options. Companies like SoFi Invest and Charles Schwab are commission-free ways to invest in your IRA. SoFi invest also lets you invest in fractional shares, and for beginner investors, both platforms are excellent choices for investing your $10,000.
If you want more stock research tools and greater ETF selection, you can also try TD Ameritrade. With commission-free trading, a virtual trading simulator, and in-depth research tools, TD Ameritrade is ideal if you want to spend more time honing your investment skills as an active trader.
Ultimately, an IRA is one of the most efficient ways to invest $10,000 because of the tax deductions you leverage. However, always remember to check the IRS contribution limits so you don’t over-contribute and incur a 6% annual penalty tax on your excess contribution.
2. Invest With A Robo-Advisor
If the idea of picking your own investments sounds intimidating or too time-consuming, you can still put your $10,000 to work. With robo-advisors, you can put your investing strategy on autopilot and begin building a nest egg that will serve you well in the future.
In the past, robo-advisors weren’t as competitive with human advisors because there were fewer to choose from. Plus, fees were higher and account options weren’t very flexible.
These days, leading robo-advisors are both affordable and versatile. Robo-advisors typically charge a small annual fee that’s a percentage of your portfolio. In exchange, robo-advisors invest your money to suit your goals and risk tolerance. Many platforms also provide automatic rebalancing and tax-loss harvesting to optimize performance and help offset some of your gains when filing taxes. Finally, some robo-advisors also let you speak to a human financial advisor if you need more personalized wealth planning.
You can use robo-advisors to invest in an IRA. However, most robo-advisors also support other account types, and this is a good thing. After all, you also want to invest in a taxable brokerage account with money you plan on using before retirement because withdrawing money from an IRA early incurs penalties.
Several leading robo-advisors you can invest $10,000 with include:
- Titan. Requires $100 to invest for individual accounts and $500 for for IRAs; fees are 1% annually for accounts over $10,000 and $5 per month for accounts under $10,000; operates similarly to hedge funds and selects 20 stocks to invest in; account options include individual accounts, traditional IRAs, Roth IRAs, SEP-IRAs; accepts rollovers from a 401(k) or 403(b) account
- Betterment. No minimum investment; 0.25% in annual fees for accounts under $100,000; upgrade to premium for 0.40% in annual fees to unlock human advisors; invest in individual and joint accounts, traditional IRAs, Roth IRAs, and simplified employee pension (SEP) plans
- SoFi Invest. Requires $1 to invest; no annual fees; account options are the same as Betterment
- Wealthfront. Requires $500 to invest; 0.25% in annual fees; Wealthfront account options are the same as Betterment but also includes a 529 college savings plan
What makes robo-advisors appealing is cost effectiveness. For example, both Betterment and Wealthfront only cost $25 per year in fees if you invest $10,000. Titan is slightly more expensive at $60 per year for accounts under $10,000. SoFi invest stands out from the competition with zero fees. The bottom line is that leading robo-advisors let you start investing on autopilot without management fees eating too deeply into your gains.
3. Invest In Real Estate
Another method to invest $10,000 is real estate. You don’t need to save up for a down payment either and get involved in rental properties. Thanks to real estate crowdfunding, you can benefit from income-generating real estate without taking on the responsibilities of being a landlord.
Historically, investing in real estate was only available to accredited investors. To become an accredited investor, you need a net worth of at least $1 million. Alternatively, you can have an individual annual income of at least $200,000 or joint annual income of at least $300,000.
However, several real estate crowdfunding platforms for nonaccredited investors have grown in popularity in recent years. These platforms typically invest in real estate equity and debt and pay investors through dividends and overall share appreciation.
Leading real estate crowdfunding platforms include:
- Fundrise. $500 minimum investment; 1% management fee; equity and debt investments; average return of 10.57% from 2014 to 2019; dividend payments vary depending on your plan but range from 1.5% to 3.4% in annual dividend income
- DiversyFund. $500 minimum investment; no management fees; development fees between 2% to 8%; pure equity investments; average return of 17.65% between 2017 and 2018; dividends reinvest automatically to fund renovations
- Groundfloor. Investments as low at $10; no fees for investors; pure short-term debt investments; loans return between 5% to 25% depending on the level of risk
- Streitwise. $1,000 minimum investment; 3% upfront investment fee and a 2% annual management fee; average return of 9.57%; over 8% in average annual dividend payments since inception
Different real estate crowdfunding platforms suit different investing styles. If you want the most flexibility, Fundrise has three plans with varying levels of growth and dividend payment focus. In contrast, DiversyFund is a long-term real estate investment option that’s solely focused on appreciation.
If you prefer diversifying your portfolio with debt and want the lowest funding requirement, Groundfloor is your best choice. Finally, Streitwise is a newer player in the real estate crowdfunding game with an emphasis on dividends to generate passive income.
With a $10,000 investment, you can also try multiple real estate crowdfunding platforms to find what suits your investing style. Just note that investing in real estate is typically less liquid than many other securities. Most platforms charge early withdrawal fees, so read the terms of your investment before you put your $10,000 into real estate.
4. Invest in Farmland
When it comes to alternative investments, farmland might be the last idea that comes to mind. After all, much of the hype in recent years for alternative investments is surrounding cryptocurrencies. Similarly, newer alternative investment platforms like Vinovest for fine wine investing and Masterworks for investing in artwork are also growing in popularity.
However, it’s possible to invest in farmland to diversify your investment portfolio and potentially take advantage of an overlooked asset.
With companies like FarmTogether and AcreTrader, investing in farmland is simple. Minimum investments typically range from $10,000 to $25,000 and buys you one to four acres of farmland. You have to be an accredited investor to use AcreTrader, which is a downside. However, once you invest, you make money through annual cash payments made by farmers and appreciation of land value.
AcreTrader charges a 0.75% annual servicing fee. Additionally, AcreTrader invests with five-, 10-, and 20-year holding periods in mind. This limits liquidity, and if you want to sell your shares early, you can only sell to other AcreTrader members.
If you aren’t an accredited investor, you can still invest in farmland through specific real estate investment trusts (REITs) that focus on agriculture. For example, Gladstone Land Corporation (NASDAQ: LAND) is one REIT that’s been operating since 1997 and currently owns over 115 farms across the United States. Gladstone Land Corp has a dividend yield of 2.97% and is a more liquid option for investing in farmland that platforms like AcreTrader.
If you’re a brand new investor, it’s probably best to stick with more traditional securities like stocks and ETFs to learn the basics. However, if you want to invest $10,000 in an asset class that’s a long-term hold, farmland could be the right fit depending on your liquidity needs.
5. Invest in a 401(k)
If your employer offers a 401(k) plan and, more importantly, 401(k) matching, you’re sitting on one of the most efficient ways to invest for retirement.A 401(k) is another type of tax-advantaged retirement account that employers can offer as a benefit.
In most scenarios, you can’t write a check to your 401(k); the money has to come from your payroll, not your bank account. However, you can use your $10,000 to offset your lower paychecks to maximize your 401(k) contributions.
There are two types of 401(k) plans that are similar to Roth IRAs and traditional IRAs:
- Traditional 401(k). Money you contribute is deductible from your income for a given year, which helps lower your income tax.
- Roth 401(k). You pay taxes on the money you contribute to your Roth 401(k). However, when you withdraw money from this account, you don’t pay taxes.
The money you contribute to either 401(k) type comes out of your paycheck. You invest the money in a selection of funds. When you retire, you can withdraw money from your 401(k). Ultimately, using your 401(k) helps you reduce your tax bill and simultaneously save for retirement.
Plus, some employers offer 401(K) matching up to a certain percentage of your salary. For example, an employer might offer to match every dollar you contribute up to 2% of your annual salary. If you earn $50,000 per year, that’s $1,000 in free money from your employer if you contribute $1,000 of your own.
For 2021, the contribution limit for 401(k) plans is $19,500. Employees over age 50 can also make catch-up contributions of up to $6,500 to help save for retirement.
Pro tip: If you can invest in a 401(k), check out Blooom, a robo-advisor that specializes in retirement accounts. Blooom analyzes your 401(k) account to assess risk, asset allocation, fees, and performance to optimize your investments to suit your goals. Read our Blooom review for more information.
5. Pay Off High-Interest Debt
Figuring out whether you should invest or pay off debt isn’t always simple.
On the one hand, there are advantages to becoming debt free. Less stress, a better credit score, more free income, and less financial risk are a few examples. However, there’s good debt and bad debt, and it’s sometimes in your best financial interest to invest your money even while you carry debt.
Often the best solution is to pay off high-interest debt as fast as possible and to make minimum payments on lower-interest debt. High-interest debts to pay off can include credit card debt, payday loans, and auto loans. As you eliminate high-interest debt, you can begin paying off less urgent debt but also invest money in the stock market.
So, before investing your $10,000, analyze all your debt and formulate a repayment plan. Popular debt payoff methods include the snowball, avalanche, and snowflaking methods. If you can eliminate your high-interest debt as fast as possible with your $10,000, that is often a more effective strategy than putting all your money into investments.
6. Start a Home Improvement Project
Another option for investing $10,000 is to put that money into a home renovation project to increase your home’s overall value.
When done correctly, certain home renovation projects almost always increase home value according to HGTV findings:
- Kitchen Remodeling. Costs approximately $15,000; average return at resale of 98.5%
- Small Bathroom Remodels. Costs approximately $10,000; average return at resale of 102%
- Landscaping. Costs approximately $3,500; average return at resale of 100%
- Deck or Patio Addition. Costs approximately $11,000; average return at resale of 90.3%
- New Windows. Costs approximately $10,000; average return at resale of 89.6%
- Home Exterior Upgrades. Cost ranges from $7,000 to $10,000; average return at resale of 95.5% to 103.6%
Additionally, some home improvement projects qualify for energy efficient tax credits. For example, solar water heaters, solar panels, and small wind turbines can qualify for a tax credit up to a certain percentage of installation cost.
When you consider tax credits and the potential long-term energy savings, putting your $10,000 toward a more energy efficient system for your home could save money and increase the value of your home if you ever sell.
Just note that some home improvement projects can decrease your home’s value or make selling more challenging. For example, spending too much on a luxury bathroom redesign is unlikely to cover costs upon selling. Similarly, maintenance-heavy additions like a swimming pool or complex landscaping can decrease home value and make it harder to find a buyer.
7. Contribute to a Health Savings Account
If you have a high-deductible health plan (HDHP) and currently pay significant out-of-pocket medical expenses that aren’t deductible on your tax return, you might benefit from opening a health savings account (HSA).
An HSA is like an IRA, only for medical expenses. Money you contribute to a HSA is deductible from your taxable income, meaning you can lower your tax bill through contributions, just like with a traditional IRA.
Additionally, you can invest money in your HSA and enjoy tax-free growth. Once you reach 65, you can withdraw money from your HSA for nonmedical expenses and get taxed at ordinary income tax rates without paying any penalties.
There are several requirements to open a HSA. According to the IRS, 2021 HSA requirements and contribution rules include:
- A HDHP minimum deductible of $1,400 for individuals and $2,800 for families
- An individual contribution limit of $3,600 and $7,100 for families
- Maximum HDHP out-of-pocket expenses of $7,000 for individuals and $14,000 for families
- $1,000 catch-up contributions for anyone over age 55
HSAs are powerful because you get immediate tax savings alongside tax-free growth and withdrawals. The catch is that you can only spend money in your HSA on medical expenses until you reach 65 if you don’t want to pay penalties. However, medical expenses are broadly defined to include dental care, eyeglasses and contacts, birth control, fertility expenses, hospice care, prescription drugs, and doctor’s appointments. The IRS outlines all eligible expenses in Publication 502.
You can’t put $10,000 into your HSA account within a single year. But families can contribute up to $7,100, which can lead to meaningful income tax deductions. If you maximize your HSA contribution, you can put your remaining money into another investment idea.
However, HSAs don’t make financial sense for every household. Generally, a HSA is only beneficial if:
- You pay significant out-of-pocket medical expenses but aren’t able to deduct them because they don’t equal at least 7.5% of your adjusted gross income
- Increasing your deductibles with a HDHP results in annual savings on your premium or no net change in cost
If a HSA can save you money, open an account with a HSA provider. One of the best HSA providers for keeping your investing options open is Lively. With Lively, you don’t pay monthly or annual fees. Plus, Lively partners with TD Ameritrade so you can invest with full autonomy without paying commissions.
Ultimately, your first step should be to determine whether a HDHP plan is right for you. If you can save money on your premium and take advantage of tax savings through a HSA, this is an efficient way to invest a portion of your $10,000.
9. Go Back to School
According to the National Center for Educational Statistics, the average cost for one year at a public educational institution was $17,797 for 2017 to 2018. This includes the cost of tuition, fees, and room and board for full-time students.
However, $10,000 can still go a long way in furthering your education. If you’re currently struggling to find a job out of school or don’t have additional schooling past high school, investing in your education might be one of the most powerful changes you make.
You don’t need to pursue an expensive four-year degree either. Many accredited online colleges offer one- or two-year certification programs. There are hundreds of online degree options, and although many cost more than $10,000, this investment can still cover a significant portion of some shorter degrees.
Plus, most online colleges are flexible in terms of scheduling, so you can complete your degree over the course of a few years and even work part-time or full-time while in school.
Going to a technical trade school instead of college is also a wise investment if you’re looking for work in industries that are typically always in demand. Plus, you can find trade schools where the annual cost of tuition is under $3,000, meaning your $10,000 can cover most or even all of a degree.
Technical trade schools prepare you for the workforce. Additionally, despite the misconception that college is more prestigious, many trade jobs pay incredibly well according to the Bureau of Labor Statistics.
Examples of annual salaries for various trade jobs include:
- Electrician: $56,180
- Airplane mechanic: $64,310
- HVAC technician: $48,730
- Plumber: $55,160
- Welder: $42,490
- Commercial Driver: $45,260
- Radiologist: $62,280
If you go back to school, you should still aim to find a job you love. However, spend time researching the job market for degrees you’re considering and what average salaries are so you know the financial impact your $10,000 can have.
10. Start An Online Business
Starting a business is usually expensive. When you factor in rent, inventory, employees, and other expenses of a brick-and-mortar business, it’s clear that $10,000 won’t cut it. In fact, raising money to start a business often means dipping into your entire savings, taking out small-business loans, or seeking funding from investors.
However, $10,000 is more than enough for many online business ideas that don’t face the same startup costs as traditional businesses.
Many online businesses simply require starting a website. For example, if you become a freelancer, you can start pitching clients with your services once you create your online portfolio. Similarly, starting a WordPress blog likely costs under $100 if you use an affordable host like Bluehost and a cheap theme for your blog.
However, some online businesses require upfront capital to purchase inventory or equipment. One example is starting an Amazon FBA business, which is how over 70% of the top U.S. Amazon sellers power their Amazon sales.
Amazon FBA stands for “Fulfilment by Amazon.” With this model, you ship inventory you want to sell on Amazon.com to Amazon warehouses rather than holding inventory yourself. When you make a sale, Amazon is responsible for shipping and logistics. This agreement lets you focus on managing your Amazon listings and finding products to sell.
Typically, Amazon FBA sellers rely on retail arbitrage to find inventory. This involves purchasing everyday items from discount retailers or during clearance sales at stores like Kohl’s or Walmart and then reselling them on Amazon at a markup.
Amazon charges a variety of FBA fees, and you need upfront capital to purchase products for resale on Amazon. However, relying on Amazon’s expertise for order fulfilment is a massive advantage to doing everything yourself, so it’s no surprise that so many sellers opt in for the program.
You can apply the same arbitrage concept to selling on eBay. If you can find undervalued products to resell on eBay, you can turn your eBay profile into a successful side business.
Commonly, people use thrift store flipping or scour garage sales for products they can resell. It takes time and money to build up your inventory, and your investment isn’t especially liquid. However, with practice, you learn what product categories typically sell well and how to properly price your listings.
Just remember, you don’t have to invest $10,000 entirely upfront to start an online business. Start out as a side business while working your regular job and see how it scales over time. If you need funding for inventory or part-time help, your $10,000 is the perfect cushion to fall back on.
There’s no denying that $10,000 is a lot of money for most people. If you have this amount sitting in a high-yield savings account or checking account, it can feel like it’s burning a hole in your pocket.
However, one final piece of advice is to do your research before you invest $10,000 or any other amount. The worst thing you can do is to act emotionally and invest in something you don’t truly understand.
Start listening to financial podcasts, keep up with investing news, and think about the type of investor you are. As you learn more about your financial goals and risk tolerance, certain investment ideas will make more sense than others.