Intro: How to Invest 50K in 2016-2018 | The Best Way to Invest $50,000 to Retire a Millionaire
You have recently come into some money – whether through an inheritance, the sale of property or a business deal gone wonderfully right – and you want to invest it for your future.
Needing to determine how to invest 50,000 dollars is a great problem to have; however, considering all of the options available to you can be a daunting task.
In this article, we will review the best way to invest 50,000 according to your current financial situation and future goals.
Make Sure You Are Financially Ready to Invest
Before you jump right into making the decision on how to invest 50k, it is important that you first assess your overall financial situation to be sure that investing the entire amount is what is currently best for you.
Before investing 50,000, make sure that you are in the financial position to invest. If you have high-interest debt, such as credit card debt, then you should pay that debt off first.Otherwise, you would be doing yourself a disservice by hanging on to a debt that charges you 25 percent interest while you are only gaining 7 to 12 percent returns on your investment. The financially responsible thing to do is to pay off all high-interest debt before investing 50,000.
On the other hand, it is okay to hang on to low-interest debt, such as a car loan with a 3-percent interest rate, since your rate of return on your investment is likely to be higher than the interest charged on the debt.
You should also be sure to have a savings account with an emergency fund in place. It is important to have an emergency fund that can see you through for a few months if you were to lose your job, become ill or disabled or face some other unforeseen disaster. If you do not have an emergency fund set up yet, then you should consider placing at least $15,000 aside for one before you begin considering the best way to invest 50,000.
Once you have paid off all debt that charges a higher interest rate than your rate of return on your investment and have your emergency fund set up, you will be ready to begin investing.
Your Employer-Sponsored 401(k) Plan
If you are wondering where to invest 50k for the highest rate of return, then an employer-sponsored 401(k) that offers an employer match is your answer. This is especially true if you have a significant amount of time left until retirement and haven’t begun building up your retirement savings yet.
Planning for retirement should be your priority. The IRS allows contributors to put a maximum of $18,000 a year into their 401(k). If you aren’t already contributing the maximum amount allowed, you should consider changing your election to take full advantage of the employer match and high rate of returns.
Adding the money to your 401(k) portfolio really is the best way to invest 50,000, but if making that large of a commitment to your 401(k) leaves you feeling a little squeamish, then at least be sure to invest enough to take full advantage of your employer match policy.
If your annual salary is $100,000 and your employer matches up to 6 percent of your salary at a 50 percent match, then contributing $6,000 a year will net you $3,000 a year in employer match, which is essentially free money invested on your behalf.
Investing 50,000 in your 401(k) and taking full advantage of your employer’s matching contributions will put you on the road to retiring as a millionaire.
A Roth IRA
Like your 401(k) plan, a Roth IRA can be one of the best ways to invest 50,000. The current IRS yearly contribution limit for a Roth IRA is $5,500, and you should consider investing this maximum amount once you have reached your annual limit on your 401(k) contribution.
The best feature of a Roth IRA is that it allows you to access your money penalty and tax-free at any time for virtually any reason. Since the contribution is made to the Roth IRA with after-tax dollars, you do not need to worry about paying tax on future profits. For best results, consider investing in stocks that complement your 401(k) portfolio such as an international index fund.
To put it into perspective, if you were to invest the maximum amount of $5,500 a year for 30 years, with a 7 percent annual return on investment, you would have netted over half a million dollars.
The ability to access your money without penalty and not having to pay taxes on profits makes a Roth IRA a good solution to those wondering how to invest 50k.
Once you have contributed the maximum annual amount to your 401(k) and Roth IRA, you may want to look into ways to invest the amount you have left. There are many options on how to invest 50k, and starting you own portfolio investing in mutual funds is one of them.
Mutual funds are a good choice for long-term investing. For best results, consider investing in global and emerging market funds and holding onto them for a minimum of 15 years and, ideally, even longer. If you want to diversify your portfolio, you can also add a commodity-based mutual fund to the mix, but, either way, be prepared to hold on for the long term in order to capitalize on the most returns for your investment.
If cost is a concern for you, you might consider investing in an index fund as they are the cheapest. Either way, when done right, mutual funds can be the best way to invest 50,000.
Investing in Stocks
When considering how to invest 50k, some people consider investing in stocks. The stock market can be tricky to navigate and is considered to be a much higher risk investment than investing in mutual funds.
To be successful in stocks, timing is very important. The goal is to buy low and sell high, so getting in on the ground floor of a stock right before it takes off is ideal.
If you decide to try your hand at investing in stocks, it is best to consider seeking guidance from a financial advisor. A financial advisor will be able to analyze the market and help you select the investments that will fit best with your goals.
A Real Estate Investment Trust
Investing in a real estate investment trust, or REIT, is one option for those seeking the best way to invest 50,000. REITs are a type of security that invest in different areas of real estate, such as property and mortgages. They are often traded on exchanges in much the same manner that stocks are.
REITs can be a good choice of where to invest 50k because they usually produce high yields and allow investors to invest in real estate while keeping assets very liquid.
When you invest in a REIT, you may be helping to finance a wide range of real estate endeavors. REITs can encompass everything from apartment complexes and shopping malls to warehouses and lumber yards.
REITs are ideal for those investors who are seeking income because federal law requires them to have a dividend payout ratio of 90 percent. So, if you are looking for a more aggressive investment strategy than just mutual funds, then investing in a real estate investment trust may be the best way to invest 50k.
Investing in CDs
If you want to invest part of your money toward funding a short-term goal, such as buying a new car or paying for a renovation to your home, then a CD may be where to invest 50k.
You should shop around and compare rates before deciding on a CD. For the best returns on your investment, consider investing in a five-year CD as they tend to have higher rates than most short-term CDs do.
By shopping around and comparing rates, it is possible to find five-year term CDs with rates as good as 2 percent APY. If putting the money away for a while to be used for a specific purpose a few years down the road is your goal, then investing 50,000 in a CD may be the way for you to go.
A 529 Plan
If your goal is to invest in your children’s future, then the best way to invest 50k may be to put it in a 529 plan.
A 529 plan is a state-sponsored college investment plan. The major benefit of investing in a 529 plan is that it allows your money to grow tax-free as your children grow up. When you are eventually ready to make a withdrawal to pay for their college education, you are able to do so free from state and federal taxes.
Each state has developed its own 529 plans, and they are not all equal. Some states have a much more cost-effective plan in place than others, so it is important to consider your particular state’s plan and cost before deciding where to invest your 50k.
If your state’s plan is less than ideal, you can consider investing in another state’s 529 plan that will yield you a better investment than your own.
Investing in a 529 plan can be a great way to ensure your children’s college tuition gets paid for, but it is important to carefully consider all of your options before deciding if it is the best way to invest 50,000.
When it comes down to it, how to invest 50k depends on your personal financial situation and your long-term goals. Before doing any investing, you should first pay off all high-interest debt and set up an emergency fund big enough to cover three to six months’ worth of expenses in case of an unforeseen hardship.
Once that is done, your biggest priority should be building your retirement fund. If you are not already contributing the maximum amount allowable to your 401(k) annually, then doing so is the best way to invest 50,000. You should also invest in a Roth IRA in order to further grow your wealth for retirement.
If you are already contributing the max allotment to your 401(k), then some other options for investment are mutual funds, stocks, and real estate investment trusts. If saving for your child’s education or a short-term goal, such as a car or property purchase, is your goal, then a 529 plan or five-year CD may be where to invest 50k for you.
Whichever direction you choose to go in, it is important that you carefully evaluate your current financial situation and research all options available to you in order to make an informed decision.
If you feel unsure on where your money will best serve you for your future goals, consider consulting a financial planner for guidance.
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