The best way to invest 20k in 2023
Have $20,000? It’s time to invest that money, whether in the stock market or yourself, rather than having it sit around and become stale.
Congratulations if you have lately acquired $20k to invest! Saving (or inheriting) that much money in a short amount of time is simple and unusual.
Yet, if you don’t put that money to good use, inflation will cause you to lose money.
Here are some ideas for the best way to invest 20k
Use a robo-advisor when investing
It’s the best way to invest 20k $20k with a robo-advisor because you’ll be able to start investing in the stock market immediately in a broadly diversified manner.
Similar to a financial advisor, a robo-advisor uses algorithms to choose, diversify, and adjust your savings over time-based on your financial resources, risk tolerance, and investment goals rather than selecting expensive investments on your behalf. An example of such an organisation is Betterment. A conventional, taxable investing account or an IRA can be opened. You can open and fund a Roth or traditional IRA first and then transfer the remaining funds to a taxable investing account.
Unless you’re older and complete catch-up requirements, you can contribute up to $6,500 annually to an IRA.
Use a broker to make investments
Many people like to invest independently, even if many prefer hands-free investing with robo-advisors. Brokers can assist you in doing that. Before the advent of internet brokerages, people had to pay expensive fees to a broker who would execute deals on their behalf. That is fast fading into history. Online brokers can assist you in learning about the stock market and making quick and simple investments with your money for a fraction of the price.
Make a 401(k) switch
One choice is to essentially “switch” $20,000 into your 401(k) if you have a job and money to invest (k).
Since that money usually comes from your paycheck or bonus, you can raise your contribution level significantly (often up to 75% of your salary) until you have contributed $20,000 – utilising the funds you already have to compensate for the lost income.
If you now contribute 5% of your $40,000 annual salary to your 401(k). That amounts to around $2,000 yearly, not factoring in employer matches. Let’s imagine you have $20,000. You decide to invest in it. You wouldn’t feel like you were living on any less if you put the $20,000 in a liquid, high-yield savings account and increase your 401(k) contribution. (But I’d still encourage you to try.)
Thus, change the donation from 5% to 50%; that’s right, 50%. In addition to depositing $20,000 in a 401(k) after a year, you will have significantly decreased your taxable income by half. This is because you don’t pay taxes on the money you put into your 401(k) when you contribute. Only the money that is still in your paycheck is subject to tax. As a result, rather than making $40,000 in a year, you have only made $20,000 in the eyes of the government. In most circumstances, you’ll pay fewer taxes, so it’s a win-win situation.
Invest in property
With a single-family rental property, you’ll need to pay more than $20,000 to get started, but you can still start investing in real estate if you want to. There are companies where you can pool your money with other investors and make significant investments.
Attempt peer-to-peer lending
One approach to lending money to someone else who needs it is peer-to-peer lending. This might be for anything, including education loans, company ideas, or even clearing credit card debt.
Peer-to-peer lending, often called P2P lending, has the advantage that returns can be significantly larger than if you invest in stocks or bonds. Yet, the danger is substantially more serious because many borrowers will only pay back the loan on time or at all.
Be careful to complete as much research as possible before investing some of your $20,000 in peer-to-peer lending. Well, it is one of the best ways to invest 20k.
Spend money on education
My father once said that your education is the one thing no one can ever take away from you. It’s still with me today because it’s so accurate.
In the stock market, your entire investment could be lost. Your company might fail. Yet, that will never go if you have a degree and a solid education.
If you still need to get a college degree, think about acquiring one in a field that you love but is also highly employable. Consider pursuing an advanced degree, such as a master’s or a PhD, if you already have a college degree.
One of the biggest returns on your money is paying off high-interest debt.
Yep, it’s true—paying off your debt, particularly your credit card debt, is one of your best investments. Payoff any other debt you have if you don’t have credit cards.
Consider this: the amount of money you’ll save on interest by not having any debt will much outweigh any return you’ll find in the current investment market. This encompasses any asset, such as shares, fine art, or real estate. This also has easy math. Assume you own a credit card with a 15% interest rate. You earn 15% if you pay off the card. And that’s a fast return without the need for research or speculation, as there might be with stocks or real estate.
And it might even be worse than that. Take out a personal loan at 25%, for example (yes, this can happen). You’ll spend a tonne of money if you merely make the minimum payment each month. Money that you could have invested again.
Cut your credit cards, pause using them, and concentrate on paying off your debt if you’re heavily in debt and have money to invest. And that $20k will undoubtedly put a dent in it.
Recall that diversification is essential, particularly with this amount of money. If you have little experience with anything, consider putting all your eggs in one basket.
An exception to this is investing with a robo-advisor. Knowing that my $20k will be invested with a robo-advisor and be well-diversified gives me great peace of mind. Just make sure you have a variety of accounts (i.e., retirement versus regular investment accounts.)
Whatever you choose, the most crucial thing is to avoid letting that money sit in your checking account since you’ll miss out on many opportunities.