How to Invest $50,000

When you think of investing, the stock market might come up as a popular way to invest your money. This makes sense, considering that more than half of American households (52%) have investments in the stock market to some degree, according to the Pew Research Center. 

But if you’ve amassed $50,000 toward your next investment, the stock market isn’t your only option. Depending on your risk tolerance and investing preferences, some types of investments might be a better fit for you than others. 

Here are some of the best uses for your money if you have $50,000 to invest. 

How to Invest $50,000 Starting Today

Technically speaking, an “investment” is something that gives you money back in return. We’ll include some of those on the list, but we’ll start with other “investments” that are also important for your long-term wealth.

1. Top Off Your Emergency Fund

Risk level: Low

If you don’t have a fully-funded emergency fund), this should be your top investment priority.

According to a well-publicized 2018 survey from the Federal Reserve, four out of 10 people wouldn’t be able to cover even a small $400 emergency in cash — and that was well before the pandemic even started. If 2020 has taught us anything, it’s that your entire financial life can be upended overnight. When that happens, your emergency fund is literally your financial lifeline.  

A good place to keep your emergency fund is in a high-yield savings account. A savings deposit account lets you easily access that cash. It’s also recommended to keep some of it in cold, hard cash — say, $500 or $1,000 — in case of an emergency that shuts down the electrical grid (and ATMs with it). 

The only downside to this approach is that right now savings accounts aren’t paying a lot of interest. On the flip side if you keep some of your emergency fund in cash at home, it won’t pay any interest at all and you run the risk of losing it or having it stolen. Nevertheless, having an emergency fund in some form or other is a non-negotiable for financial stability. We recommend you check out CIT for your online savings needs.

Emergency Fund Pros	Emergency Fund Cons
Everyone needs one	Typically doesn’t pay much interest
Provides security in an unsecure world	Can lose or have money stolen if held in cash
Gives you a solid base for riskier investments
Can provide peace of mind

2. Paying Off Debt

Risk level: Low

In 2018, the average American carried $90,460 worth of debt, according to an Experian survey. If you’re carrying any debt — especially credit card debt or other high-interest debt — it makes sense to consider paying it off first before dropping money in the stock market. 

Paying off your debt won’t exactly earn you money like an investment, but it lets you keep more of your dollars in your wallet for the future. This way, it’s a relatively safe investment: if you use a debt payoff calculator you’ll know exactly how much you’ll “make” by paying off your debt today. 

For many people, paying off debt offers more mental health benefits than financial benefits. There’s something very freeing about knowing that your future income isn’t legally beholden to someone else. If you run into financial trouble in the future, it’ll be easier to skate your way through since you’ll have fewer bills. 

Paying Off Debt Pros	Paying Off Debt Cons
Frees up cash flow each month	Can earn a higher return elsewhere
Clear your legal obligation to creditors	Can’t get the money back once it’s sent to creditors
Can boost your credit score
Can provide peace of mind

3. Top Off Your Retirement Contributions

Risk level: Varies, according to which investments you choose

Americans aren’t saving enough for retirement. In 2019, a Northwestern Mutual survey found that 22% of Americans have less than $5,000 saved for retirement, while 15% have no retirement savings whatsoever. Yet, unless you plan on going out early in a blaze of glory, chances are you’ll retire someday — by force or by choice — and you’ll need money to sustain you. 

In 2020, you can contribute up to the following amounts in the different types of common retirement accounts:

• Roth IRA and Traditional IRA: $6,000 ($7,000 if you’re 50 or older)
• SEP IRA: 25% of your business compensation, or $57,000 (whichever is less)
• Solo 401(k): 100% of your business compensation, or $19,500 (whichever is less)

How risky or safe this is depends on what types of investments you choose for your account. You could invest in CDs, for example, for an ultra-safe (but low-earning) investment, or you could “bet it all at the racetrack” for a super-risky (but potentially high-earning) stock market reward. 

Similarly, you have a lot of options for where to open your retirement account. If you have a workplace account like a 401(k) you’ll likely use your paychecks to fund it, but you can put your $50,000 into an IRA or a retirement account for self-employed people if you’re a business owner or a side hustler. 

Retirement Savings Pros	Retirement Savings Cons
Create future security in retirement	Access to funds is restricted until age 59 ½ unless you pay penalty fees
Take advantage of compounding interest now
Might be able to lower tax bill

4. Open a Taxable Brokerage Account

Risk level: Varies, according to which investments you choose

A taxable brokerage account works just like an IRA, except you don’t get all the extra tax savings. On the flipside, you can take out that money anytime you want. Just like with an IRA you can choose to invest your $50,000 in money market accounts, stocks, bonds, index funds, mutual funds, ETFs, etc. 

In other words, a taxable brokerage account gives you another place to invest in the market besides your retirement accounts. If your emergency fund is already set up, you’ve maxed out your retirement contributions, and you still have extra money left over, a taxable brokerage account can help grow your investment. 

Taxable Brokerage Account Pros	Taxable Brokerage Account Cons
Lets you invest extra money in the market	No tax advantages
Can withdraw the money at any time	Can be riskier for short-term savings goals
Can earn a higher return than a savings account over long term

5. Invest in Real Estate

Risk level: High

Americans have always loved real estate. Maybe it’s because it’s something tangible that you can touch and feel, as opposed to owning a share in a company through stocks or bonds. Or maybe it’s because it’s one of the fastest ways to gain wealth. Either way, a Gallup poll found that 35% of Americans feel that real estate is the best long-term investment, compared to other long-term options, like savings accounts and stocks. 

Real estate is also a bit of a broad investment category. $50,000 might not buy you an entire rental property unless you live somewhere with a very low cost of living, but you can use it as a down payment for your own rental property. This is one of the riskier and more time-consuming ways to invest in real estate. 

You can also invest in real estate indirectly through REITs (real estate investment trusts) that work a lot like index funds. With REITs, like RealtyMogul, you still get the potential for big rewards but you don’t have to worry about fixing a broken toilet in the middle of the night (or paying for a property manager to do it for you). 

Real Estate Pros	Real Estate Cons
Potential for high returns	Potential for big losses
Easy to invest with REITs	Time-consuming for DIYers
Good way to diversify your portfolio	Can get very complicated

Your Investment Style 

After the basics like topping off your emergency fund and paying off debt, investing a sizable $50,000 isn’t as straightforward. For example, if you want to save money in a retirement account or open a taxable brokerage account, you’ll need to know what type of investments to put in there, and how and when to adjust it over time.

That’s the tricky part for a lot of people. Deciding on how you want to handle this — or not — in advance can help you plan your strategy. 

DIY Investor

If you’re comfortable with learning the ins and outs of investment strategies and doing all of the management yourself, DIYing it by opening a brokerage account can be the best way to go for investors of all experience levels. That’s because you’ll save the most amount of money in management fees, which can be a big drain on your earnings. But on the flipside, if you make unwise or uninformed choices, you could lose a lot, too. 

Robo-Advisor

Robo-advisors are a great option for people who can’t or don’t want to work with a live human and who also aren’t interested in a completely hands-off approach. Robo-advisors, like Betterment, generally work similarly. 

They take you through a questionnaire to figure out what your financial goals are, and then they choose and manage your investments for you according to an algorithm. This is usually a lot cheaper than hiring an investing professional to do it for you, and removes tricky (and costly) emotions from the equation, too. 

Hire a Financial Advisor

Financial advisors can perform many different roles in your financial life. If you really couldn’t care less about how your investments are managed, hiring a financial advisor might be your best choice. They are available to manage your investments and answer your questions throughout the entire process — of course, this is usually the highest-cost option. 

Conclusion 

If you’re in the enviable position of having to figure out what to do with $50,000, you have a few options. The truth is that it doesn’t need to be so black-and-white. You don’t need to choose one option at the expense of all of the others. You can choose bits and pieces from this list: use a bit to top off your emergency fund here, buy some index funds within your IRA there, and so on. 

Ultimately, you’ll need to decide which of these choices is the best use of your extra cash, based on your short- and long-term goals.