So you’ve got $10,000 set aside to invest. What now?
You don’t necessarily have to pump all of that money into a single investment account or investment type. You can diversify your portfolio and take advantage of many different wealth-building accounts and platforms, including brokerage accounts, robo-advisors, retirement accounts, and education savings accounts.
But before you get started, make sure you’ve got enough set aside in an emergency savings fund. The hope is that you’ll gain money in investing, but there’s always a possibility that your investments will lose value.
Determine what kind of investor you are
This is perhaps the most important step to take before investing $10,000. There are generally two types of investors: hands-on and hands-off investors. These aren’t mutually exclusive investing styles, though. You can practice both types.
Hands-off investors typically use buy-and-hold strategies, where they purchase certain investments and hold themover long periods of time. These individuals are also known as passive investors since they aren’t actively placing trades.
If you’d like to sit back and watch your investments grow, or utilize the help of a finance professional, robo-advisors or financial advisors could be a great hands-off strategy for you.
If the thought of researching investments and placing your own trades sounds good to you, hands-on investing, or acrtive trading, could be a good fit. Hands-on investors take the driver’s seat when investing. Brokerage accounts are perfect for DIY traders because they not only let you pick your own investments, but also usually offer commission-free trading on stocks, bonds, and other securities.
Ways to invest
Set up a brokerage account
Online brokerages are investment platforms that typically offer investing accounts, retirement savings accounts, cash management plans, and other wealth-building tools. These investment apps are perfect for active traders and DIY-oriented investors since they give you the power to choose investments on your own.
Commission-free trading on stocks, bonds, ETFs, and other investments is also common with online trading platforms. And some brokerages offer both active trading accounts and robo-advice. For instance, Vanguard, E*TRADE, and SoFi all provide brokerage accounts and automated investing accounts.
Passively invest through a robo-advisor
Robo-advisors handle everything for you, so you won’t be able to trade on your own. You may also have to pay a minimum deposit (these typically range from $0 to $500), monthly subscription fee, or annual asset-based fee to get started, but these investment platforms take care of all of the tricky parts of investing and retirement savings.
Work with a human financial advisor
If you’d rather invest and work one-on-one with the help of a professional, a financial advisor could be right for you. But you’ll want to be prepared for any fees you may run into.
If you’re looking to invest some, or all, of your $10,000, you’ll need to ask prospective advisors about their fees. Not all traditional advisors have a minimum account size requirement, but most advisors generally have larger account size requirements than brokerages and robo-advisors.
When it comes to financial advisor fees, you could end up paying asset-based fees, fixed fees, or hourly fees. Financial advisor asset-based fees can range from 1% to 2% of your portfolio’s balance each year. As for fixed fees, you could pay between $1,000 and $3,000 per year. If your advisor charges hourly fees, you could pay between $100 and $300 per hour.
Your investment options
Stocks: Stocks are ownership shares of public companies that trade on stock exchanges. Companies generally issue out stocks to raise money for business expansion and other projects. In addition, these investments can generally gain or lose value, depending on a company’s success. Many investors use stocks to capitalize off of short-term market fluctuations.
Bonds: Bonds are government and corporation-issued investments that allow you to earn regular monthly income, plus interest. Governments and corporations use these investments to raise money and fund projects, so when you invest in one, you become the lender, and the government or corporation has to pay you back within a certain period of time.
ETFs: ETFs are investment funds that contain multiple security types (e.g. stocks, bonds, or commodities). ETFs trade on most stock exchanges and generally carry less risk than stocks.
Mutual funds: Mutual funds act as a bundle of various investment types. These funds pool investors’ money together to invest in bonds, stocks, and other securities. Unlike ETFs, mutual funds have professional managers that handle investment orders and monitor the fund’s performance.
Options: Options allow you to buy or sell a certain investment at a set price within a specific timeline. While not all online brokerages charge for options contracts, you’ll typically pay between $0.50 and $0.65 per contract.
Real estate: Real estate investing is another option for putting your $10,000 to work. If you take the real estate crowdfunding platform route, you can take advantage of automated investment management for as little as $500 (though some real estate apps have minimums that can range from $1,000 to $25,000).
If you’re more of a DIY-minded investor, buying and flipping properties on your own may be appealing. However, this may not be the best option, as it could cost much more than $10,000.
Cryptocurrencies: Cryptocurrencies are digital assets that let individuals and businesses invest and buy goods and services. You can usually buy these virtual assets on exchanges, but all online brokerages don’t offer them.
Precious metals: You can invest in gold, silver, platinum, and other metals through many brokerages and investment platforms. For instance, Interactive Brokers and Fidelity both offer an array of metal investments.
Retirement investing accounts
Employer-sponsored plans: Retirement plans such as 401(k)s, 403(b)s, and 457(b)s are also great investment vehicles. But the type of employer-sponsored retirement plan you’re eligible for depends on your employer.
For most of these plans, you can contribute up to $19,500, plus an additional $6,500 if you’re 50 or older. In addition, the total amount both you and your employer can contribute is $58,000, so it may be worthwhile to invest a portion, if not all, of your $10,000 toward retirement.
IRAs: Individual retirement accounts (IRA)s differ from employer-sponsored retirement plans in two key ways: (a) you don’t have to be employed to open one, and (b) the contribution limits are lower. You can set up either a traditional or Roth IRA and contribute up to $6,000 per year (or $7,000 if you’re 50 or older).
Another thing to consider is that you don’t have to choose one plan over the other. You can generally contribute to both an employer-sponsored plan and an IRA.
Education savings plans
529 college savings plan: These state-sponsored plans let you save for certain educational expenses such as tuition, living expenses, and books and supplies. Plus, 529 plans don’t have any strict contribution limits and the money in your plan grows tax-deferred, allowing you to earn and withdraw tax-free money.
Coverdell Education Savings (ESA) account: Coverdell ESAs are similar to 529 plans in that both let you save for your child’s education costs. These accounts also let you invest in stocks, bonds, mutual funds and other investments.
The difference is that ESAs only allow you to contribute up to $2,000 per child every year. And if you’re single and make more than $110,000 per year, you can’t contribute to one. Married couples can’t set up ESAs if they make more than $220,000 and file taxes jointly.
Custodial accounts (UTMA/UGMA accounts): Many brokerages, like Fidelity and Charles Schwab, offer these custodial accounts. With a UTMA/UGMA custodial account, you’re essentially setting up a brokerage account for your child/dependent. These savings vehicles have no contribution limits and let you transfer the account’s holdings to the minor once they reach their state’s legal age of majority (usually 18 or 21).
Should you invest $10K?
This is a question only you can answer. If you’re considering investing $10,000, make sure to thoroughly assess your financial situation, including any assets or liabilities you have. It’s important that you only invest money that you don’t absolutely need at the moment.
And while brokerages, robo-advisors, and financial advisors are generally three of the key ways through which you can invest, you don’t have to limit yourself to just one. If you want to actively trade investments, and also open an account with a robo-advisor or human financial advisor, you certainly can.