Investing

The Best Way to Invest $10,000: Complete Guide for Growing Your Money

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If you are sitting on $10,000 or 10k in cash, you are probably wondering what the best way to invest $10k is?

The good news is that you have a variety of investment options. Depending on your age, investment goals, and current financial position, there are numerous investments out there that could be a perfect fit.

One of the most important things you can do before you decide on any specific investment is to look at your current finances. If you own a residence or have debt, that should figure into your investment decisions.

Saving money is the same as making it, especially if you are getting rid of high-interest debt.

While there are a lot of good ways to invest 10k, if you can save money by paying down debt, that might be your best way forward!

Let’s Invest 10k

If you are like most people, there is probably some debt hanging around in your financial life. The best way to invest 10k might just be to wipe out whatever high-interest debt you have and save a bundle over time.

It breaks down like this:

Let’s say you have $5,000 worth of credit card debt that costs you 20% per year in interest payments. If you invest 10k in any of the investments listed below, it is unlikely (though not impossible) that you will gain a 20% return per year.

So the best way to make a big return on your 10k will be to pay off the $5,000 in high-interest credit card debt and take the rest of your money to the markets.

The situation is a little bit more complex when it comes to home loans. If you borrowed money to finance the purchase of your house, there is a good chance that some or all of the interest you pay is tax deductible.

Paying down debt you can write off your taxes isn’t such a smart move, but it is a good idea to have some cash set aside in case of rough times. You can keep paying your mortgage while you figure out how to earn more money and not stress about your house payments.

How to Invest 100k

Read Also: Best Way to Invest $100k

Talking About Taxes…

If you are just starting out in the world of savings and investment, it is a good idea to know something about tax-deferred investment accounts. Most countries have some sort of investment plan that allows its citizens to invest money without paying taxes on it, at least until they retire.

In the USA, there are a number of tax-deferred investment accounts to choose from. The most common is some form of IRA, or a 401(k) account. The idea behind all of these accounts is basically the same. A person is allowed to contribute a set amount of money into a tax-deferred account every year, and invest it in approved investment accounts.

At first, the kinds of investments that you could make were sort of limited, but today there are a ton of options to choose from. Most of the investment options listed below offer some sort of tax-deferred account, and many will be happy to help you rollover (reinvest) existing accounts if possible.

There are many good reasons to have tax-deferred investment accounts, but keep in mind it will be much harder to access the money once you commit to a retirement savings plan. It is a good idea to have some money stashed in a regular account as well, that you can access if you need it quickly.

Time to Invest 10k!

So, now that you have addressed your debt situation, and decided on a retirement plan, we can get down to all the investment options you have spread out in front of you!

Investments generally break down into two basic categories. You can buy equity in a company, like stocks or shares, or debt. There are numerous kinds of each investment type, but you will probably be investing in one or the other as a passive investor.

If you are more interested in starting up your own small business, $10,000 might be enough to do it. Depending on where you live, and what you would like to do as a business, $10,000 could be enough to get something off the ground.

There have also been a number of financial innovations over the last two decades that are worth knowing about. Prior to the year 2000, the idea of an Exchange Traded Fund (ETF) was still in its infancy, and people who wanted diversified exposure to equity or debt were stuck in mutual funds.

The intricacies of these financial products will be discussed below, but for now, lets just say that the last 20 years have been exciting for anyone who is into Modern Portfolio Theory.

Risk and Reward

Any article about investment should touch on the relationship between risk and reward.

For those of you that don’t know already– bigger risks tend to produce larger rewards. They also tend to create bigger losses if an investor gets the market wrong, which could quickly turn into a Google search for the best way to invest $1,000.

Risk analytics are complex and poorly understood. Every time there is a major crisis the regulators seem to come up with new rules, which fail to stop the next crisis from happening.

From the standpoint of a retail investor, it is worth knowing that stocks are riskier than bonds (generally), and that within every market there will be lots of investments at every risk level to choose from.

Buying Equity in The Stock Market

When investments are mentioned, most people think of the stock market. Equity investments have become a staple in most people’s financial planning, and global stock markets contain enormous amounts of capital.

The good news for prospective stock market investors is that it has never been easier to gain access to the equity markets. There are numerous discount brokers, a few of which we will mention (there is no endorsement implied, just some info to get your research started).

In addition to established discount brokers, there is a new wave of stock trading platforms hitting the market. The most famous one is Robinhood, which is aimed at younger people.

Before we get into stock market investing, and some brokers you can look into on your own, let’s talk about…

Basic Stock Market Lingo

The financial markets have their own lexicon, and you should know a little bit of it before you jump into buying stocks. Here are some of the most basic terms there are, which will hopefully help you understand the investment world a little more.

  • Buy/Sell – These are simple terms, and for most stock market investors selling will only happen after buying. There are different ways to buy and sell stocks, which are outlined in this list.
  • Order Type – Market and limit orders are the most common types of buy and sell orders. A market order means you will buy or sell a stock at the prevailing market price, and a limit order means you will set a level to buy or sell.
  • Dividend – Some stocks pay people that own them on a quarterly, yearly or one-time basis. These payments are called dividends. Not every stock pays a dividend, and the amount of a dividend can change over time.
  • Bid/Ask – Markets are basically an ongoing auction which can move in either direction. The bid is how much someone is willing to pay, and the ask is what another investor is willing to accept for any given security. The bid/ask spread is the difference between the bid and ask price.
  • Market Capitalization/Cap – If you take all the shares that a company has issued, and multiply them by the current price, you will have the market cap. This figure is often considered to be the value of a company, in a very simple sense.
  • Beta – Any basic stock quite will include the beta. It is a measure of how much a stock moves in relation to another, generally larger, index or market. For example, if the S&P 500 was being used as the baseline, and it goes up by 1%, and then a stock goes up by 2%, the stock would have a beta of 2.

Read: How to Invest in Stocks

Finding a Broker is Easy!

If you live in a developed economy, like the USA or UK, it is simple to open a brokerage account and buy stocks.

There is a little confusion that surrounds the word ‘broker’ today. A few decades ago, there was no way to trade stocks directly, and you actually had to call a human who would trade stocks on your behalf.

That person was, and still is, called a stockbroker. Now many services exist that some call brokers, which could just as easily be called ‘electronic stock trading platforms’. The costs involved with stock trading have fallen, and making trades from your smartphone is a simple process today.

Assuming that you have read a bit more than this article, and you are ready to put your money at risk in the stock market, here are a few stockbrokers to help your research. Again, we are not endorsing these brokers/trading platforms, they are just being used as examples.

E-Trade

E-Trade was one of the first platforms to break away from the traditional stockbroker model. It offers its clients the ability to buy a wide range of financial products at rates that are well under $10 per trade. When E-Trade was young in the late 1990s that was a super low price for stock transactions, but today it isn’t as cheap as some of your other options.

Discount brokers like E-Trade will give you a shiny trading interface that you can use to buy, sell and keep track of your portfolio, as well as numerous educational tools.

If you want to get into more advanced trading, many brokers offer options trading as well. It is a good idea to read up on derivatives before you attempt to trade them. You can lose more than your account’s value, especially if you don’t understand risk management.

Most of these brokers offer retirement accounts, and E-Trade even drops its minimum investment for some retirement accounts down to $0. Otherwise, it is $500, which is well within your reach if you are sitting on $10,000!

Other Brokers Like E-Trade Include:

  • TD Ameritrade
  • Fidelity
  • Charles Schwab
  • TradeStation
  • Merrill Edge

Robinhood

Paying less than $10 to buy or sell stock might seem cheap until Robinhood hit the market. To be sure, Robinhood isn’t the same thing as E-Trade or any of the other brokers listed above. While the features that Robinhood offers its users are limited, it is 100% free to use.

That’s right, you can trade stocks for free with Robinhood’s app.

On the downside, Robinhood offers limited trading features and zero educational tools.

The platform has also been the subject of some controversy over how it executes its users’ trades, but this could just be blowback from Wall St. trading operations who stand to lose a tremendous amount of revenue if platforms like Robinhood catch on with the under-30 crowd.

The fears from Wall St. seem well places, as Robinhood has attracted a lot of investment capital in less than a decade. It has also given rise to other platforms that work along similar lines.

Such as:

  • Wise Banyan
  • Acorns
  • M1 Finance

Keep in mind that these new-ish platforms allow you to trade stocks for free, but they may have limited abilities when it comes to Exchange Traded Funds (ETFs).

There is no one-size-fits-all solution for investments, so learn a little bit more before you go all in with an investment platform that has limited capabilities.

The Stock Exchange Has Loads of ETFs Too!

First, there were mutual funds. Then, Exchange Traded Funds (ETFs) came to the party. Both mutual funds and ETFs do more or less the same thing, but ETFs are always able to be bought or sold on a stock exchange.

Both of these financial instruments came about because of Modern Portfolio Theory (MPT), and give investors the ability to diversify into a huge range of stocks and bonds with small amounts of money.

What is an ETF?

Read: What are ETFs?

A Word on Modern Portfolio Theory

Modern Portfolio Theory was introduced by economist Harry Markowitz back in the 1950s. There has been a lot of work done on the subject, but the bottom line is that MPT suggests that diversification is a better way to invest than just buying a few stocks and hoping for the best.

The theory figured heavily into A Random Walk Down Wall Street, which was written by economist Burton Gordon Malkiel. Again, the idea is that investors should go after a very diverse group of investments, as most managed funds can beat the broad indices, like the S&P 500.

Partially as a result of these ideas, financial vehicles like hedge funds and mutual funds were born. The drawback to both (at least initially) was that it was still difficult to approximate the performance of an entire index, which was the goal of an investment strategy based on the ‘random walk’ hypothesis.

ETFs have changed the game, and today investors can buy low-cost funds that are traded on stock exchanges which replicate the performance of a major index. These low-cost index ETFs are vital to how robo-advisers operate, which are talked about below.

ETFs – A Few Things to Know

The good news is that if you want to invest $10k, the world of ETF can offer you a lot. Today, there are ETFs for just about every kind of asset, including stocks indices, equity market sectors, debt, and even leveraged funds that allow you to use leverage without a margin account.

Depending on what you want to do with your money, ETFs could take care of your needs. You can gain exposure to just about any equity market, or geographic region with ETFs, and split your money up between debt and equity.

The fees to hold most ETFs are very low, generally under 2% per year. If you decide to use a robo-adviser the fees can be even lower, as most of the companies that back automated investment platforms get an even better deal on buying and selling ETFs.

ETFs are one of the biggest reasons why choosing a discount broker might be a better move than going with a super-cheap platform like Robinhood. You could also use both, and trade stocks for cheap with Robinhood, while you use your discount broker to gain access to ETFs.

The Rise of Robo-Advisers

You may have heard something about robo-advisers, and want to know more about how automated investment platforms could help you invest $10k. The world of robo-advisors (robos) is relatively new, extremely diverse, and growing all the time.

Most robos use a system that creates a number of portfolios, which an investor is assigned to based on their investment goals and tolerance for risk.

The portfolios are created by human investment managers. Not every robo platform uses this system, but almost all of them will use some sort of test to appraise your level of investment knowledge, and what you are willing to accept in terms of losses.

There are also robos that specialize in Socially Responsible Investing (SRI), as well as platforms that offer smaller investors access to state-of-the-art trading algos. There are numerous options out there, so be choosy about the features that you look for in a robo.

Best Robo Advisors

Read: What are Robo Advisors

Robo-Advisors are a Good Fit for Many Investors

If you don’t have many of your own investment ideas and don’t want to spend loads of time learning about the markets, robos make a lot of sense. The advent of low-cost ETFs has allowed automated investment platforms to diversify relatively small amounts of money across a range of asset classes.

The cost to use a robo-advisor is also generally quite low. Most robos have a minimum investment of between $1-$500 and offer a range of account types.

Investors are usually charged an annual fee that is a percentage of the amount they deposit, as well as a fee to cover the costs associated with trading. All of this generally adds up to less than 2% of the assets, which is a very low amount of money to pay for professional investment management.

Best Robo Advisors

Here are our picks for the best Robo Advisors, currently available.

Robo AdvisorHighlightsFeesMinimum
Blooom
Visit
Read Review
  • No Account Minimum
  • Low Fees
  • Professional Account Management
  • Automatic Rebalancing
$10 Per Month$0
EXO Investing ReviewExo Investing
Visit
Read Review
  • Low Fees
  • AI Driven Investments
  • Access to Hundreds of ETFs
  • No fees for Portfolio Rebalancing
  • FCA Regulated
0.75% – 0.5%£5000
Money Farm
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Read Review
  • Competitive Fees
  • Great Customer Support
  • FCA Regulated
  • Easy to Use
  • Low minimum requirement
0.7% – 0.4%£1
Wealth Simple
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Read Review
  • Low account minimum and no extra fees
  • Investment in fractional shares
  • Easy to Use
  • Access to financial planners
  • Tax-Loss Harvesting
0.5% – 0.4%$0
Fidelity ReviewFidelity
Visit
Read Review
  • Low Fees
  • Pathfinder System
  • Long History & Well Established
  • Will pay Penalty Fees for Moving to Them
  • Great for Funds
0.35% – 0.20%£50

Debt Based Investment Offer Security

The debt markets don’t have the flash and dazzle of the stock market, but they can be a great place to park your money if you need reliable returns.

Most people expect to make money in the stock market from appreciating values (the stock goes up), but the debt markets are a little bit different. Every debt instrument (bonds, notes, and bills) will have a fixed rate of interest it pays, but the price of the bond will change based on the interest rate in the market.

Confused yet?

Don’t be, it is super simple.

Let’s say you buy a bond when the interest rate (set by the market) is 2.5%. Then, the interest rate falls to 2%. Because you bought the bond when the market interest rate was higher, the ‘price’ of the bond has to rise, so that the interest rate falls to the market rate.

In other words, when interest rates fall, the price of bonds rise, and vice versa.

It is fairly rare for retail investors to buy bonds directly, as they are generally denominated in $10,000 increments. That means that if you want to invest $10k in bonds, bond funds or bond ETFs will be the best way to do so.

There are a multitude of bond funds to choose from. Some only hold government bonds, while others own corporate bonds, which generally have higher yields. Like anything in the financial markets, the higher the rate of return, the higher the perceived risk.

Peer-to-Peer Lending Platforms

Over the last decade, a new way to borrow and invest has hit the markets. A big part of a bank’s business model is making loans, but now peer-to-peer (P2P) lending platforms are giving investors and lenders another option.

At its most basic level, P2P lending is extremely simple. As an investor, you have to open an account on a P2P platform, and then you will be able to make loans directly to the borrowers on the platform.

Like any debt market, there are borrowers at every level of risk. You will be able to sort through borrowers based on the information they provide and make loans you want to make. Of course, these loans may not be paid back, which is where diversification comes into the mix.

Borrowers can qualify for tens of thousands of dollars in loans on P2P platforms, but they generally break the loans into smaller amounts for the lenders. That allows you to spread your investment out over many borrowers, which lowers the risk of a catastrophic loss of capital.

Best Peer to Peer Lending Sites

Read: Best Peer to Peer Lending Sites

If you are interested in P2P lending, here are a few places to look:

There are many other P2P lending platforms, and the minimum investment is usually under $1,000. Depending on where you live, and which platform you choose, you may have to be an accredited investor to become a lender.

Don’t worry if you can’t use a P2P lending platform to invest. The rates of return are more or less in line with commercial bonds, which can easily be bought via ETFs.

Do Something Local

Depending on where you live, $10k might be enough to get a small business off the ground.

Don’t be intimidated if you live in an urban area where costs are higher, there is always room for a new cleaning business, which is generally inexpensive to start-up. Most cities have small business groups that have regular meetings if you are looking for some ideas of where there may be a niche waiting to be filled.

Small businesses do have a high failure rate, and that means a lot of risks and no return. You can try to find partners if you want to start your own business so that the risk of loss is diversified across more than one person.

You Have Loads of Options to Invest $10k

No matter what your financial goals are, there is sure to be an investment option for you out there. The last few decades have been great for retail investors. Lots of new financial products have hit the market, and there has been serious competition to drive down transaction costs.

Remember that risk and reward go hand-in-hand and that most active stock portfolio managers can’t beat the S&P 500. When they do, it is usually only for a few years. Investors like George Soros and Paul Tudor Jones are exceptionally rare, and most people are only able to make money in equities by riding the broad markets higher.

Diversification can help you to spread your risk out, and survive a tough marketplace. There is nothing wrong with playing it safe and building your wealth slowly. Do lots of research, and make sure you get the most you can out of your money!

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Nicholas Say grew up in Ann Arbor, Michigan with a father that would read him the Wall St. Journal along side of other bed-time fare. He has traveled extensively, and been lucky enough to study a changing global economy in person. Nicholas spent many years in the Southern Cone of South America, sometimes in the middle of the countryside where livestock starts its journey to all points of the globe. Today he is thoroughly bemused with the stance that Central Banks have taken in the wake of the 2008 meltdown. There is no telling what will come out of the global financial system next, but he is glad that he lives somewhere that gold can be bought and sold readily! nick@moneycheck.com


Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank or credit card issuer and have not been reviewed, approved or otherwise endorsed by any of these entities.


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