Want to build wealth? Make your money work for you by investing. If you recently had a windfall, or if you’ve saved up enough to feel comfortable making a few investments, you might be surprised at what you can accomplish with $10,000.
Before you invest, it’s important to understand how investing works and your risk profile. Once you have an idea of how to invest the right way, it’s possible for you to start making real headway with $10,000. Here are some of the best ways to get started.
1. Use index funds to start
Don’t try to pick the one “right” investment, said John Linton, the founder of Elbert Capital Management, a registered investment adviser. Instead, he suggests diversifying your portfolio instantly with a collection of funds.
Funds grant you instant exposure to collections of investments, providing a level of safety. If one stock in a fund goes down, it’s unlikely to drag everything down. While index mutual funds can be a good choice, Linton favors exchange-traded funds. These are similar but can have lower costs and be traded like individual stocks.
“If an investor was to invest the $10,000 across a US stock ETF such as SPY, a foreign stock ETF such as IXUS, and a bond fund such as BND, the investor would be diversified across 8,465 bonds, 500 US stocks, and 3,454 foreign stocks,” Linton said.
The idea of diversity is generally accepted by many investment experts. The idea is to use funds that follow a large swath of the market, so that you limit your risk.
Including a U.S. fund and a foreign fund, for example, can provide geographic diversity to your portfolio. A bond fund adds a different level of safety. Bonds are considered less volatile than stocks by many experts, so including them can somewhat protect you from swings in the stock market.
However, this approach also lets an investor tailor the percentage of the portfolio according to their risk tolerance. “If an investor is more risk averse, they can put more of that $10,000 toward a bond ETF and put less toward the stock ETFs,” said Linton.
How to get started with funds
If you decide that fund investing is right for you, there are two main ways you can invest quickly and easily:
- Retirement account contribution: If you’ve already got a 401(k) through work, make a one-time extra contribution with your windfall. You may benefit from your employer match. If you can’t put any more money into your 401(k), you can make a contribution to an IRA. A tax-advantaged account can be a good place to park your money.
- Open a taxable investment account: You can also open a taxable investment account. It’s fairly simple to open an account with an online discount broker that offers access to low-cost funds that you can add to your portfolio. A robo-advisor such as Wealthfront can help you get started quickly and easily — and help you find the right balance of funds.
Carefully consider your options to see what might make the most sense for your situation, and decide what is likely to best meet your needs.
2. Build a real estate empire
Maybe you’re not interested in stocks and bonds, and you hope to diversify into real estate. But can you invest in real estate with $10,000?
According to some experts, you may be able to invest in real estate with a modest windfall. Here are some of the ways you can get real estate to work for you.
Pick up rental properties with an FHA loan
“I would use $10,000 to buy a duplex with an FHA loan, live on one side, and rent out the other,” said Shawn Breyer, a real estate investor in Georgia.
He pointed out that you can secure an FHA loan with 3.5% down. With $10,000, you could potentially get a property valued at $285,714. This strategy is what Breyer and his wife used to get started with their own real estate investing business.
“We were able to eliminate our housing expenses since the other unit’s income covered our mortgage and some of the utilities,” Breyer said. “This allowed us to save an extra $14,000 a year, allowing us to buy the next house.”
Now, the Breyers buy other homes to rent or flip, and their original investment still allows them to live without housing expenses while generating cash flow.
Use a real estate investment trust (REIT)
Some types of real estate investing requires hands-on work. If you’d prefer to avoid that, an REIT might be a possibility. REITs invest in different types of real estate, putting properties or mortgages into a trust that you can essentially buy into. REITs pay out a portion of their profits in the form of dividends, potentially boosting your long-term returns.
Lucas Alcalde invested $10,000 in a REIT. In a little more than a year, his investment was worth $11,100. This was, in part, due to his decision to reinvest dividends.
“So far, the REIT I invested in returns 8% per year, based on the price per share,” Alcalde said. “At that rate, you double your initial investment about every 10 years, so after 50 years, I could have $500,000 when I turn 80.”
See how much you could earn over time by using our investment calculator.
Use a crowdfunding platform
Investment crowdfunding allows you to take a smaller amount of money and join others in buying assets, including real estate.
“Crowdfunding platforms allow investments into real estate or agriculture to provide you with a way to diversify a retirement portfolio with offerings that produce regular cash flow and long-term appreciation, without being impacted by stock market conditions,” said Chris Rawley, the CEO of crowdfunding platform Harvest Returns.
“Many crowdfunding platforms have a minimum of $10,000 or less, making them perfect for you to easily get started,” Rawley continued.
3. Start a business
If you’ve got $10,000 and a good idea, you can start a business, said Gil Gildner, the cofounder of digital advertising agency Discosloth.
“Use it as living expenses while bootstrapping your own company,” suggested Gildner. “If you can live for four or five months at that amount, you have enough to start a profitable company from scratch.”
There are a number of low-cost side hustle ideas that can be leveraged into long-term money-makers, assuming you have access to the necessary equipment and have the right skillset. Some of the businesses that you might be able to start with a small amount of money include:
- Pet sitting
- Web development and design
- Freelance writing
- Affiliate marketing
- Home and yard care
With a little ingenuity and some hard work, it’s possible to turn that $10,000 into sustainable returns over time.
Start where you’re comfortable
No matter how you decide to invest your $10,000, it’s important to carefully consider your options and understand that you could lose your money.
Start with something you’re comfortable with. As you become better able to gauge your risk tolerance and ability, you can add more exotic investments to your portfolio.
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