How to Invest $50,000

A $50,000 windfall could really help you secure your financial future. With time and smart financial planning, you can create financial stability for yourself and your family – and even turn your money into a million dollars by making some truly fundamental investments.

Here’s how to invest $50,000 and what you need to do to build wealth.

What you need to do before you start investing

Investing is important for your financial future, but eliminating expensive debt and having a solid financial foundation are also critical to building wealth. If you have high-interest debt, such as credit card debt, it’s critical that you get that debt paid off before investing.

What are the costs of high debt? If you’re paying more than what you can get from the stock market in an average year — about 10 percent — then you’re probably better off paying off your debt before investing your money. Paying off debt that costs you 20 percent or more annually is a no-brainer investment that offers 100 percent safe returns with no risk.

Of course, this does not mean that you have to pay off all your debts before investing. Once you have a handle on cheaper debt, such as student loans and mortgage debt – both of which can give you a tax break – then you can start thinking about investing for the long term.

How to Invest $50,000: The Best Ways to Grow Your Money

1. Start immediately

If you want to turn your money into real wealth, don’t wait any longer. Time is your most valuable ally when it comes to growing your money. Even if you don’t start with $50,000, you can start with what you have and build it up by saving money every week. Here’s how powerful time is when it comes to growing your wealth.

If you start with $50,000 and stop putting money into your investment account, you can grow your starting bankroll to hundreds of thousands of dollars, even with sub-par returns, such as 6 percent per year. (Keep in mind that over long periods of time, the S&P 500 has returned about 10 percent annually.) Even an 8 billion percent return will net you more than half a million dollars over thirty years.

Of course, the numbers are much better with a 10 percent annual return and enough time. And think about how important an extra five years is for your total return. If you invest an additional five years (from 30 years to 35 years), this will give you a total of about 60 percent more, about €532,000 more.

That’s why it’s important to start investing right away, and then you can add money as your income allows.

2. Determine your investment objective

How you invest is determined by the reason why you invest. If you want to build overall wealth over time, you can invest in assets with the best long-term returns. If you’re looking for a specific, shorter-term goal, you may have to sacrifice some returns to ensure you get there in time.

• A specific goal: If you’re investing to achieve a specific goal, such as a down payment on a house, you probably want to play it safer than if you’re building overall wealth. You want to tailor your investments, such as CDs, to when you need the money. If you have shorter-term goals, it’s better to rely on safer investments than to invest in a potentially volatile stock market, where it’s unclear whether your money will be there when you need it. However, you can use a brokerage account to find safer investments such as bond funds.
• General wealth: If you plan to build overall wealth over the long term, then a brokerage account is an option for you, and it is offered at all online brokerages. These accounts allow you to buy stocks and stock funds, which offer the best opportunities for long-term growth. You can multiply any capital gains while deferring taxes on these gains until you sell, although you will be taxed on any dividends. You can access your money at any time, which is useful if you have an emergency or simply want to retire early and don’t want the limitations of a retirement account.
• Pension assets: If your goal is to build retirement wealth, you can turn to specialized accounts like a 401(k) plan or an IRA. These accounts allow you to avoid or defer taxes, allowing you to accumulate money faster. But these accounts can come with penalties if you need to access them before you reach retirement age, typically 59 ½. However, you can invest here in assets with a high return, such as shares and equity funds.

Your goal partly determines how you will invest your money. Of course, you can invest with any or all three of these goals, but you will want to tailor your investments for each of these goals.

3. Decide how you will invest

Now that you have a firm grasp on your goal or objectives, you can now figure out how you are going to achieve them. You have three options to do that:

• Manage your money yourself: When you manage your money, you get to make all the decisions, no matter how intimidating or exciting it may seem. Learning to invest may seem too difficult at first, but with a few mutual funds and the right approach – passive buy-and-hold investing – you’ll likely beat most of the pros.
• Invest with a robo-advisor: If you prefer to let a professional manage your money, a robo-advisor is an option. A robo-advisor follows the same process that an investor would use to build an investment portfolio, and does so based on when you need the money and how much risk you are willing to take. Add your money to the account and the robo-advisor will do the rest. The best robo-advisors offer tons of features, even more than most human advisors, and they don’t cost much either, often $25 for every $10,000 invested annually.
• Let a financial advisor manage it: A financial advisor can also help you manage your investments, but you’ll need to find one that fits your goals. Bankrate’s financial advisor matching tool helps you find someone near you so you can see if they’re a good fit for your wants and needs.

Either approach can be successful, so choose the one that suits you best. An important difference is how much time you want to spend on your investments. Even if you manage your money yourself, you can still put in minimal time and succeed.

4. Invest your money

It’s time to invest your money. That may seem difficult, and using a robo-advisor or human advisor can make the process easier because you let the professionals do the work for you. But investing doesn’t have to be difficult, even if you manage the process yourself.

• If you invest for yourself: When you invest your retirement money or build overall wealth, you make all the investment decisions. Fortunately, you have a great investment choice available to you and all investors: an S&P 500 index fund. This type of fund holds stocks of hundreds of America’s top companies, and has an average annual return of about 10 percent over long periods of time. If you take a buy-and-hold approach, the research shows you’ll outperform most investors, including the pros. This list of the best index funds can also give you some top picks for your account.
• If a robo-advisor invests for you: You can set up your robo-advisor account by answering questions about when you need the money and how much risk you are willing to take. The robo-advisor selects the funds and weights them in your portfolio. You can add your money to the account all at once, but it may be better to contribute to the account over time. You can check your account at any time.
• If a human advisor invests for you: Your advisor will also assess your investment goals and risk tolerance and then put together an investment portfolio for you. The advisor can do it all, including portfolio management, but it’s critical that you find an advisor who aligns with your goals and is compensated accordingly. Here are the most important questions to ask a financial advisor to find the right one for you.

Although you may have someone else manage your money, you still want to understand how it is invested and why. Shares and equity funds are proven long-term investments, so you don’t need anything exotic to achieve good returns over time.

If you want to invest for retirement or build overall wealth and you have more than five years before you need the money, you can take on more risk in exchange for higher potential returns. That means you can afford to have a higher allocation to stocks and stock funds. A diversified stock portfolio typically produces good returns, but is volatile in the short term, meaning stocks are not a good choice for short-term goals.

If you’re investing for a short-term goal, you’ll likely want more exposure to safer investments, such as bonds and bond funds, CDs and high-yield savings accounts. These alternatives provide regular income and help reduce risk and volatility in your portfolio.

5. Continue topping up your account and reinvesting any dividends

With a fixed amount of money, it can be better to invest it over a period of time, as you avoid the risk of investing it all when the market is at a peak, or what experts call “timing risk.” Buying over time – which is called dollar-cost averaging – reduces this risk and ensures you can get an average price over time.

And as you invest your $50,000, think about how you can invest more regularly over time, adding some money from each paycheck. Not only will you reduce your timing risk, but you’ll also give your money more time to develop into real wealth.

If you receive dividends from your investments, you can reinvest those dividends in more shares of the stock or fund, helping you build your wealth even faster. Suddenly, your reinvested dividends will start paying you dividends. However, if you spend your dividends, you severely limit your ability to grow your wealth over time.

In short

Investing $50,000 is a great start to building life-changing wealth for you and your family. Start by thinking about your goals for the money and build your investment plan from there. Stick to established investment principles that have made other investors rich.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.