How to Invest $50k — 6 Wise Ways to Invest
$50k is a lot of money, so it’s important to use it wisely. We’re here to help you to do just that.
March 10, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
If you’re fortunate enough to have come into a sudden windfall of $50,000 and are considering investing it, you’re already ahead of the pack. Now it’s a question of figuring out how to invest $50k.
There’s no shortage of possibilities, and if you’re new to investing, it may feel like there’s a lot to learn. The decision will depend on your circumstances. We’ll run through a few key considerations and some of the most promising options to guide you through the process.
How to invest $50k: Key considerations
Before we dive straight into some of the best ways to invest 100k, let’s outline what you need to consider when formulating your investment strategy.
All investments carry some level of risk, but some markets have more volatility than others. A high annual return usually means there’s a greater amount of risk involved, so bear that in mind before the promise of above-average returns lures you in.
Investing beginners are usually better off opting for low-risk options to reduce the loss of money and lessen the psychological impact of a market drop. We’ll outline a mixture of lower-risk and higher-risk investments for you to choose between.
The time horizon you want to invest over links closely to risk levels. If you have short-term financial goals (e.g., you want to invest for three years and then use the funds to buy a house), minimizing your risk level is key.
However, if you can afford to lock your funds away untouched for a few decades, high-risk investments might be worth it. If you’d invested your money just before the financial crisis in 2008 (when the stock market dropped almost 50%), your investment would have increased around 192% by today — the S&P was worth $1,526 per unit before the crash but hit $4,534 per unit in 2022.
Investing in various asset classes ensures that, even if one market falls, there’s a chance that another market will rise. For example, the price of gold skyrocketed in 2008 while the stock market was falling.
Asset allocation is an essential part of a fund manager’s job when creating your investment portfolio. But even if you don’t work with a professional, you can invest your funds into various markets.
Deciding how to invest $50k isn’t all about conventional investments. If you have high-interest debt, consider using some or all of your lump sum to pay it off before investing. This decision will depend on how the APR (annual percentage rate) for your debt and the APY (annual percentage yield) for your potential investments compare.
Let’s say you stand to gain 10.5% from investing, which is the average stock market return. If your loan has an APR of 20% (more than 10.5%), paying it off before investing is a no-brainer — but if your APR is just 4% (lower than 10.5%), you might prefer to stick to your minimum payments and focus on investing.
Credit card debt is almost always worth paying back first since it tends to involve very high APRs, while student loans often have lower interest rates, making it viable to invest alongside paying them back.
As you can probably see already, investing is complicated. There are always some risks involved (even if you take a more conservative approach) and plenty of considerations. As a result, consult a financial advisor before deciding how to invest $50k.
What’s the best way to invest $50k?
Now, let’s get to the juicy stuff: How to invest $50k wisely. Here are a few of the best investments you can make to get your money working for you — whether you want to invest $1,000 or $50,000.
Whatever type of investor you are (or want to be), there’s something that will work for your circumstances.
If you don’t already have an emergency fund, dedicating a portion of that $50k to building one should be among your top priorities. A fund should usually cover three to six months of expenses in case of emergency, such as losing a job.
A high-yield savings account may be the right place to store the funds — it’s easy to access but still has a better interest rate than sticking everything in your checking account.
As far as low-risk investments go, making a down payment on a home is up there. No matter what ultimately happens to the value of your property, you’ll at least have a place to live, which is valuable in its own right.
If you want to go down this route, make sure you put your money in a low-risk and easy-access account before using it toward your down payment.
Another low-risk investing option is putting the money toward retirement savings — it’s a given that you’ll need money in your golden years, and retirement accounts can be very tax-efficient. This is the perfect choice for deciding how to invest $50k if you’re retiring soon and therefore don’t want to invest over a long time horizon.
If you want to max out your 401(k), you can invest up to $20,500 a year (or $27,000 if you’re 50 years old or more). Since 401(k) contributions are pre-tax, you’ll save money from your tax bill as a nice bonus — and you might even benefit from employer matching.
Alternatively, you can contribute up to $6,000 ($7,000 for those over 50) per year into individual retirement accounts (IRAs). Contributions can be with pre-tax dollars or post-tax — depending on whether you opt for a traditional or Roth IRA, both have the same contribution limits.
Investing your money in the stock market is a medium-risk investment. Choosing this route could produce considerable returns if you leave your money invested for long enough. But, it can result in losses over the short run. S&P 500 returns are 10.5% annually on average, but funds could drop by as much as 50% in a single year.
There are a few ways to approach stock market investments. You can buy index funds like ETFs (exchange-traded funds) and mutual funds, which expose you to a wide range of assets and companies. A brokerage (e.g., Vanguard or Fidelity) will let you pick specific funds, or you could use a robo-advisor app (e.g., Wealthfront or SoFi) to guide you through the process.
If you’re prepared to take on more risk, you could even invest in individual stocks.
When you hear “real estate investing,” you probably think of a rental property. While this can be one way to grow your money if you know what you’re doing, it’s a complicated process that involves a lot of responsibility. You can’t just sit back and watch your money grow — you’ll be someone’s landlord.
But buying properties directly isn’t the only way to expose yourself to the real estate market. Real estate investment trusts (REITs) allow you to invest in various real estate projects without being directly involved in the projects yourself.
For example, Fundrise is a real estate crowdfunding platform that offers REITs (real estate investment trusts) and other real estate funds.
However, this approach carries a lot of risk — if the projects aren’t successful, you could lose your investment.
If you have the risk appetite for it, you could consider investing in cryptocurrencies. Cryptocurrencies have made many millionaires, but the market is highly volatile and unpredictable, and it’s not for the faint of heart.
Most experts advise allocating no more than 1% and 5% of your total portfolio on cryptocurrencies due to the high risk. So, if you’re wondering how to invest $50k, it’s best to dedicate less than $2.5k to crypto.
Others prefer to think of it this way: Only invest what you can afford to lose.
Make your windfall work for you
Deciding how to invest $50k isn’t an easy decision — it’s a significant amount of money, and everyone’s financial situation is slightly different. The right type of investment for you will ultimately come down to your financial goals and factors such as risk tolerance, so don’t feel pressured to make a high-risk investment if it’s not something you’re comfortable with.
Ultimately, investing is a journey, and there’s always something more to learn. But you don’t have to go through it alone — Tally's† newsletter is full of personal finance tips to help guide you along your financial path while you consult a financial advisor for investment decisions.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.