Whether you’ve inherited it, won the lottery or earned it through your own blood, sweat and tears, an extra reserve of $50,000 is enough money to significantly change your life if you choose to invest it wisely. Before you spend the money, take a moment to assess your risk tolerance level and choose an investment strategy that matches your unique situation.
Determine Your Risk Tolerance Level
Your risk tolerance level is the amount of volatility and uncertainty you can withstand when it comes to your investment returns. In other words, this means the degree to which you can withstand taking a loss on your investment should the numbers not play out as you hoped. Some investments come with a low level of risk, while some come along with much higher risk and a greater chance of profits. Some of the factors that play into your unique risk tolerance level include:
Your Age
If you’re a younger investor, you have time on your side. If you make a bad investment, you have enough time before retirement to make up for it. On the other hand, if you’re an older investor who’s closer to retirement, you cannot afford to be as reckless with your money and may wish to make more conservative investments.
Your Emergency Fund
An unexpected medical bill, legal summons or lost job has the potential to bankrupt you if you’re not prepared. Build up an emergency fund robust enough to cover a recommended six months’ worth of expenses. If you don’t yet have an emergency fund, focus on building one before you invest in riskier ventures.
Your Employment Status
If you have about 10 years of experience with your current company and you’re not looking to change career paths, you probably have a very steady income. It’s likely that you can afford to invest in riskier ventures. If you are self-employed or you work part-time, your income is more variable, so it’s likely you’ll want to be more careful with your investments.
How to Invest $50 with the Least Risk
Pay Off Your Mortgage and Other Outstanding Debts
The least risky way to invest any amount of money is to pay off your outstanding debts. Debts are not assets, they do not increase in value and they accumulate interest, causing you to essentially throw money away each month. Locate your highest-interest rate accounts and pay them off first to avoid penalties and excessive interest charges. If you’ve paid off all of your debts, consider making additional payments on your mortgage.What you can do: Contact a nonprofit credit or housing counselor to help you make a plan
How to Invest $50k with Mild Risk
Invest in Index Funds
If you’re already debt-free or your debts are manageable, investing in index funds can be a safe way to work towards a robust retirement account. Index funds are a type of mutual fund that bundle stocks in the top-performing companies in the United States. The goal of an index fund is to mimic the performance of an economic index — such as the S&P 500, which represents the performance of the U.S. economy as a whole.
What you can do: Open a brokerage account and deposit a portion of your pay on a biweekly or weekly basis. Benzinga ranked the Best Online Brokerages where you can purchase index funds. Here's a quick look at Benzinga’s picks.
Any form of stock market venture comes with a small level of risk but investing in index funds effectively offsets this risk through diversification. For more information on index funds, check out Benzinga’s Best Index Funds.
How to Invest $50k with Some Risk
Research Passive Income Investments
Passive income streams are a type of investment that makes money for you without active management on your part beyond setting up the investment. Don’t confuse the phrase passive income with the idea that these investments don’t involve any work — however, after an initial time commitment of research or creation, passive income streams generate revenue with only costs related to maintenance or advertising.
Writing an ebook, maintaining a parking lot or series of ATMs or investing in peer-to-peer lending are tried-and-true passive income strategies that can help you generate income beyond an initial investment of either time or money. Passive income streams are generally considered to be a safer investment than starting your own business because they typically come along with a lower initial investment. However, the tradeoff comes in the form of profits — passive income streams generally produce lower returns initially than opening a business of your own and may take a few years to start producing significant returns. However, with savvy business planning and plenty of research, you can minimize your risk.
What you can do: Start researching, create a business plan and have trusted friends and family review your plan
How to Invest $50k with the Most Risk
Open a Franchise
Have a favorite chain restaurant or store? Don’t have one locally? Opening a franchise can help empower you to own and manage a business with mentoring, advertising and planning assistance from the franchise’s operators.
Franchisees typically have to pay the franchise owners an up-front fee to get started, as well as an agreed-upon percentage of the location’s profits. In return, the franchisee gets to take advantage of the marketing efforts already set into place by the franchise, and the franchise also usually helps the franchisee identify business locations that are likely to be profitable and offers bulk discounts for merchandise or ingredients.
While franchisees give up a large amount of creative freedom when they buy into a pre-established brand, they also receive help from the operator of the business to help ensure returns and sustainability. However, like all business ventures, opening a new location is risky — and if the franchise itself goes bankrupt, franchise owners are typically required to vacate and cease operations even if their location has been profitable.
What you can do: Research franchise opportunities and create a business plan.
Prepare Yourself
No matter where you’ve decided to invest your money, the first step is to research your investment options. Assess the risks associated with your investment, speak to industry experts and prepare yourself to mitigate potential challenges and setbacks you may face.
Frequently Asked Questions
Why should you invest?
Investing offers the potential for higher returns than traditional savings accounts, allows for diversification and compounding and can help individuals achieve their financial goals.
How much should you save vs. invest?
The amount you save versus invest depends on your financial goals and risk tolerance. It is recommended to have an emergency fund before investing. Once you have an emergency fund, you can allocate savings towards investments based on your investment goals and seek professional advice if needed. Diversifying investments is important.
What are the risks of investing?
Investing carries various risks, including the potential loss of capital, stock market volatility, economic downturns and company-specific risks. Investors also face the risk of not achieving desired returns or selling the investment at a favorable price. Thorough research and understanding of these risks are crucial before investing.
About Sarah Horvath
Sarah Horvath is a seasoned financial writer with a specialization in investing content. With a keen eye for market trends and a deep understanding of investment strategies, Sarah delivers insightful and informative articles tailored to investors. Her dedication to providing valuable content empowers readers to make informed decisions in the dynamic world of finance. Sarah’s expertise extends across various investment vehicles, including stocks, bonds, cryptocurrencies, and real estate. Whether analyzing market movements, evaluating investment opportunities, or demystifying complex financial concepts, Sarah’s writing is characterized by clarity, accuracy, and actionable insights. Through her engaging content, Sarah strives to educate and guide investors on their journey towards financial success.