How To Invest 10 Thousand Dollars

In today's world where there are lots of debt to clear and financial issues to attend to, saving up to $10,000 is not an easy feat. If after sorting out your debt and other financial responsibilities, you have a huge $10,000 left out as your savings, then investing the money is the best option. Truth be told, $10,000 is even more than what most successful investors started with, therefore erase the thoughts that the money might be too small to earn your target price. However, it is important that you are equipped on how most investment opportunity works before you make a selection of one or more investment opportunities from the numerous ones we have.

This article is a compilation of some very profound investment opportunities that are not only tax-free but with little or no risk. The truth is you can either choose an investment with minimal risk or choose one with more risk. There is no investment without its own risk. Most times, what affects the productivity of an investment opportunity is the risks attached to it. After a rundown on the different investments, the major types of risk attached to investments are explained.

However, before explicating some of the investments options, it is important to have first set a target or goal. This simply means that you sort out how long you want to invest the money in other not to get stranded when the time comes. For instance, if you would need the money in a year, then there might be no need to invest the money at all. In fact, it is advisable that the money you would need in five years' time or less should not be used for investment. This is to avoid losing out in the long run. But if you are looking forward to long-term investment, then you should go ahead and invest your money. This is because, in most cases, it takes a lot of years for your money to grow.

Seven Investment Options To Choose From

Pay Your Debt

This is the first and most important step before investing your money. Paying your debt is not an investment opportunity but a way to ensure that you are on the safe side and a way to guarantee a return on your money that is equal to the interest attached to the credit. For instance, assuming you have a 15% percent interest rate on your debt which is a total of $10,000, paying them off will give you an extra $1,500 per year.

After sorting out your debt or perhaps you have already sorted out your debt and still have an extra $10,000 with you then proceed to choose a real investment plan.

Try Robo-advisor

If you are new to investment, then you should try a Robo-advisor. A Robo-advisor provides complete management of your portfolio through a computer algorithm that helps ensure the progress of your investment is in line with your goal. All you would need to do is to pay an annual management fee of $0.25

One of the best Robo-advisor you can try is betterment. Betterment offers a very simple and inexpensive way to invest your money. It does not have a minimum amount to get started. As a result, you can start with as low as $500. With your $10,000 you can open a taxable investment account with betterment while the advisor takes over your portfolio and walk you through the steps by step guide of the investment process. Once your account is set up, the Robo-advisor rebalance your portfolio and continues to invest your profit.

Also, since betterment is an online platform, every step and action in the investment portfolio are handled automatically and accurately. Betterment handles the process of investment selection, rebalancing, asset allocation, tax-loss harvesting and many more. All of these processes are done for you at a very reasonable price.

For $10,000, the annual management fee is $0.35 or at most $35, when your investment exceeds $10,000, the management fee drops to $0.25. When you reach $100,000 your management fee drops further to $0.15. 

While your $10,000 might not buy much in the way of investing in individual stock and diversification, with betterment, you can go a long way.

The next important type of investment plan you should think of is your retirement plan. There are two broad choices in this aspect: 401(k) plan or IRA plan. Each of these retirement plans contains two or more aspects you can focus your investment on.

Max Out An IRA 

This is one of the best choices of investment to get started with your $10,000. One of the significant benefits of an IRA plan is that it offers a tax-free investment. Hence, your money continues to grow without paying any tax on income. Take, for instance, you put $5000 in an IRA account and the money grows into $40,000 at the time of your retirement, you won't be required to pay tax on all the $40,000 rather you would only have to pay tax on the initial $5000 you invested. 

The only disappointment that might be encountered with the IRA retirement plan is that you won't be able to invest all your $10,000. As of 2020, the maximum amount that can be invested annually into an IRA account is $6000 if you are below the age of 50, and $7000 if you are 50 and above.

Irrespective of the less investment rate, the IRA plan is one of the best investment plans. In fact, if you don't have one, this should be your first choice. The freedom and tax-free benefits of the account are unparalleled compared to any other investment account.

IRA plan has two options. You can choose between investing in a traditional IRA or a Roth IRA. The traditional IRA offers you a tax deduction on your contributions, the tax would be paid when you want to catch out your money after retirement. However a Roth IRA does not offer a tax deduction on contribution, rather it offers tax-free distributions on contributions. 

Max Out A 401(K) Plan

Getting a guaranteed investment is as scarce as getting free money on your investment, however with a 401(k) plan, you get both. Assuming your employer already opened a 401(k) account on your behalf, then investing your $10,000 should be your next choice of investment as it provides you with a way to get free money. All you need to do is to match contributions available in 401(k)by contributing the maximum amount you are willing to match into the account. If you don't do this, you are losing out of the free money you can earn with the account.

401(k) account does not only provide you with a lot of freedom, including tax-free benefits but it also makes it easy for you to broadly diversify your money into a limited selection of mutual funds. Since the mutual funds are selected by your employer, it is expedient that you do your own research before choosing any of the selected mutual funds. In this way, you can be sure if you would get a higher return or not.

Once you have contributed the maximum amount your employer would be willing to match, you earn double your contribution. After this, you can invest the remaining money into another type of investment opportunity.

Invest In Mutual Funds

Mutual funds are another great investment plan you can choose with your $10,000. They offer diversification of funds. This simply means, with the mutual funds, your money can be spread out into stocks, bonds, securities and so on.

The first step towards investing in mutual funds is to choose a brokerage. Some very good and popular options are Fidelity, Vanguard and Charles Schwab. Mutual funds work with index funds. The index finds is a group of stocks, bonds, and securities that work with a portfolio used in tracking market index and value. For mutual funds, the most common type of index fund used in the S&P 500. 

One of the advantages you earn by investing in mutual funds is that your fund is invested the same way they are present in index and you cash out far above the money you invested at the initial stage. 

Also, mutual funds do not require that you keep buying index in order to beat the market value. Instead, the index fund keeps duplicating the designated index in the index market. Hence when a stock is not performing very well, this can be covered up by the performance of other stocks in the index market.

Generally, risk in mutual funds is reduced to the barest minimum.

Invest In Bonds

This is similar to buying debt and works the same way mutual funds work. There are three basic types of bonds;

Corporate bonds: this is a type of bond offered by corporate companies that are looking for a means to raise capital.

Treasury bond: this is often referred to as T-bonds. They are owned by the state governments and can be purchased directly from the US government

Municipal bonds: this type of bond is operated by the cities, towns, and states and can be gotten from any of these three channels. Municipal bonds are used to fund public projects. 

Bond is often rated based on the credit of the issuer. This implies that for the T-bonds issued by the state government, the rating would be generally greater than municipal bonds or corporate bonds. One very good advantage of a bond is that the return can be calculated even before the investment, as a result, you can know whether or not you would earn from investing in a particular bond.  

However, like every other type of investment, bonds also have their own risk. When the interest rate of a bond is high, the price of a bond falls

 Therefore, if you choose to sell a bond before its maturity, you might lose out and not even sell up to the price you used in buying the bonds. 

Generally, although T-bond can only be gotten from the state government, every other bond are gotten from the bond brokerage

Peer To Peer Lending

This is another great investment opportunity you can start with your $10,000. Peer to peer lending does not work the same way all the other types of opportunities explained in this article works. Rather it is an online platform that allows you to give out loans with a stipulated amount of interest. Peer to peer lending is a very good option for investors who do not want to deal with the financial institution. On the P2P platform, you join the category of lenders and have access to borrowers from around the world. 

One significant benefit of the platform is the minimal risk involved. As a lender, all you have to do is to pay the origination fee and closing fee, and sometimes an annual fee. Two top P2P platforms today are Prosper and Lending Club. The two platforms work as an intermediary between you and the borrower. When you pay the required starting amount, they connect you with a prospective borrower, and also help with litigation should a borrower default. However, with your $10,000 you don't have to lend to a borrower at once. You can spread the money across as many borrowers as you want and you earn interest from each borrower.

Real Estate Crowdfunding

This is one very good investment opportunity currently competing with stocks in the investment market. However, in most cases, it will be impossible to get into real estate with just $10,000. This is because investing in real estate generally requires that you make a down payment of at least 20%. But you can invest in real estate by investing in real estate crowdfunding.

Real estate crowdfunding is very similar to P2P lending and investing, however, while P2P deals with consumer loans, real estate crowdfunding deal with a loan for real estate or mortgage.

Also, there are various projects available in real estate crowdfunding, as a result, you would be required to choose the aspect you want to invest in. These options include commercial real estate, apartment complexes, fix and flip investment like single-family homes. In real estate crowdfunding, you can start with as low as $1,000.

Types Of Investment Risks 

There are different types of risk attached to investment opportunities, here are some risks to take note of before choosing any of the above-mentioned investment opportunities

Market risk: This is one of the risks that can not be controlled or foreseen. It is generally an unforeseen risk. Market risk is mainly a bad hit on the overall financial market. When it happens, even diversification cannot help escape the impact. 

Business risk: This type of risk is solely a result of the company's decision. For instance, when you invest in stocks, the decision of the company where you invest could affect you're invested negatively or positively. 

Political risk: This may also affect the return on your investment. Political risk in investment often arises as a result of the reaction of the public to the decisions of the federal and state governments. 

Liquidity risk: This centers on the time and cost involved in converting your investment into cash. The higher the time and cost involved, the greater the liquidity risk. 

Concentration risk: This type of risk centers on the method of your portfolio. Your concentration risk would be higher if your portfolio is more diversified.  However, if for instance, you only operate two stock investments and one of them plummets, your portfolio would take a big hit unlike when you have 10 stock investment and one plummets.

Summary

Investment is one of the surest ways to earn more and this can be started with as low as $10,000, depending on the type of investment. Hence if you have a $10,000 and wondering how best to use the money or invest the money, you can try any of the options provided in this article.