If you have $50,000, or a large amount of money, sitting on the sidelines -- maybe in a checking account or a big bank savings account paying little interest -- putting it to work for you is a good idea.
However, the prospect of figuring out where to put a significant amount of money can seem like a scary task. So here’s a list of nine ideas to help you start planning your investment strategy.
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Nine ways to invest $50,000
Nine ways to invest $50,000
1. Open a brokerage account
1. Open a brokerage account
If you want to invest in stocks, bonds, ETFs, or mutual funds, you’ll need a brokerage account. In a nutshell, this is a special type of financial account that allows you to contribute money to buy and hold investments.
There are plenty of brokerage firms that offer accounts, and all have slightly different features. Some are rather minimalist and could be ideal for investors who simply want a place to buy and sell stocks. Others have features such as sophisticated trading platforms, educational resources, fully functional mobile apps, and much more. The best plan is to compare several of the top brokerages to see which one best meets your needs.
2. Use an IRA to invest
2. Use an IRA to invest
Technically this is a form of brokerage account. An individual retirement account, or IRA, is a special type of brokerage account that you can open with the goal of saving and investing for retirement. You can only contribute a certain amount of money each year to an IRA -- the limit in 2023 is $6,000, or $7,000 if you’re 50 or older. This can be a great way to put some of your $50,000 to work. Once contributions are made, money in an IRA can be invested in virtually any stock, bond, or mutual fund you want.
There are two main types of IRA. A traditional IRA allows you to make tax-deductible contributions, but any withdrawals from the account will be taxable income. A Roth IRA doesn’t let you deduct your contributions, but qualifying withdrawals will be completely tax-free. And, it’s worth noting that even if you have a retirement plan at work, such as a 401(k), you might still be able to qualify for IRA contributions.
3. Contribute to an HSA
3. Contribute to an HSA
A health savings account, or HSA, is an overlooked investment tool. It is often confused with the other popular healthcare savings account, the flexible spending account(FSA), but it is very different in some important ways. First, unlike an FSA, money in an HSA can carry over from year to year. Contributions are tax-deductible, and money can be withdrawn with no taxes or penalties for qualified healthcare expenses.
Here’s where it gets interesting. Money in an HSA can be invested, much like money in a 401(k). And tax-free withdrawals for healthcare expenses can be made at any time, regardless of the profits your investments have earned. Once you turn 65, you can withdraw money from your HSA for any reason, although non-healthcare withdrawals are taxable income.
To contribute to an HSA, you’ll need a high-deductible health insurance plan as defined by the government. The definition changes each year, so check out our guide to HSAs if you want to explore these investment vehicles. Annual HSA contributions are limited, so you won’t be able to invest all $50,000 this way, but an HSA is certainly worth considering if you qualify.
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4. Savings accounts and CDs
4. Savings accounts and CDs
Savings accounts and certificates of deposit (CDs) can be a smart way to protect your principal. For the first time in several years, it’s possible for investors to get a 3% or higher interest rate from savings.
The biggest drawback of savings accounts (other than their relatively low return potential) is that interest rates can fluctuate over time. Just because a savings account is paying you 3% annually now doesn’t mean that will be the case next year, or even next month.
CDs allow you to lock in your interest rate for a specified period of time and typically pay a bit more than savings accounts, but you’re committing to keep your money deposited until the CD matures -- or pay a penalty.
5. Mutual funds
5. Mutual funds
Mutual funds are a type of investment that pool investors’ money to buy a portfolio of stocks, bonds, commodities, etc. The idea is that professional managers will allocate the portfolio on your behalf, taking the need for research and single-stock risk out of the equation.
Mutual funds can be active or passive (index funds). In passive index funds, the fund managers simply try to match the performance of an index. For example, a mutual fund that tracks the S&P 500 would invest in the 500 companies in that index to match its performance over time. On the other hand, actively managed mutual funds aim to beat a benchmark index over time by allowing their managers to choose the fund’s investments.
6. Exchange-traded funds
6. Exchange-traded funds
Exchange-traded funds, or ETFs, are similar in nature to mutual funds except they trade on major stock exchanges. Instead of choosing a specific dollar amount to invest, you choose how many shares of a particular ETF you want to buy.
Most -- but not all -- ETFs are index funds, meaning that they aim to match the performance of a specific stock (or bond) index. For example, the Vanguard S&P 500 ETF (VOO -0.33%) should match the performance of the S&P 500 over time. Index funds tend to have low investment expenses, making them excellent choices for investors who are building a portfolio from scratch or who simply don’t want the risk involved with investing in individual stocks.
7. I Bonds
7. I Bonds
One interesting way to put some of your $50,000 to work involves Series I Savings Bonds, commonly known as I Bonds.
I Bonds are a special type of savings bond issued by the U.S. Treasury that are designed to protect against inflation. They pay an interest rate that is a combination of a fixed rate that stays the same for the life of the bond and an inflation-based adjustment which resets every six months. As of early 2023, the fixed rate for new bonds is 0.40% and the inflation adjustment is 6.49%, for a total annualized yield of 6.89%, which is guaranteed for the first six months.
The reason we say that you could put some of your money to work is that I bond purchases are capped annually at $10,000 per person, which is one of the main drawbacks of investing in I Bonds.
8. Hire a financial planner
8. Hire a financial planner
Investing can seem overwhelming, especially for people who don’t have time and/or desire to research their choices. If you’re in this group, there’s nothing wrong with seeking professional help -- but there are some things to know beforehand.
First, make sure you know how your financial planner or advisor gets paid. Are they a “fee-only” advisor or do they make commissions on the products they sell you? Many financial advisors sell high-commission investments such as insurance products, while fee-only advisors make the same amount of fee income regardless of where they invest your money. The short answer is that fee-based advice is generally the best way to go, but it depends on the particular compensation structure.
Second, make sure that your financial planner or advisor is a fiduciary. The simple definition is that a fiduciary is required to put your best interests ahead of theirs (this ties back into the “high-commission” investment products mentioned earlier).
9. Buy a rental property
9. Buy a rental property
Being a landlord isn’t right for everyone. Even if you hire a property manager -- which quite frankly is the best move for most investors -- owning rental properties is still a more hands-on type of investment than stocks, ETFs, and most other choices.
That said, there is significant wealth creation potential with real estate investments. A rental property can generate rental income, and the value of the property is likely to increase over time. And, unlike stock market investing, you can use significant leverage in a responsible manner to acquire real estate. Assuming a 20% down payment on a rental property, your $50,000 could have $250,000 of purchasing power, more than enough to buy your first investment property in many U.S. markets.
Before you decide to invest in real estate, be sure to do your homework. Know the amount to budget for things like vacancies and maintenance and how to evaluate the potential cash flow of prospective properties.
There’s no one-size-fits-all approach
One important takeaway is that there isn’t an ideal investment strategy or asset allocation that works for everyone. For example, a retired person with $50,000 on the sidelines might want to put it into low-risk income instruments like CDs. On the other hand, a 30-something who has a similar amount of money might want to invest in something with a little more reward potential, such as stocks or real estate. The bottom line is that the right path for you might be a combination of the nine strategies listed here.
How to invest $50,000 FAQs
What is the safest investment for $50,000?
The safest way to invest $50,000 would be to put it in a savings account or CD. These are guaranteed to protect your money while earning some return. However, the downside is that there’s limited return potential compared to some of the other ways you can invest.
How much interest will $50,000 earn in a year?
The short answer is that it depends on what you invest in and how much yield you’re getting. But as a general guideline, every 1% in yield will result in $500 in annual interest (or dividends) from $50,000. So if you invest $50,000 in a CD with a 4% annual return, you can expect to earn $2,000 in a year, assuming the CD has a maturity length of a year or more.
Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
