Contributor, Benzinga
October 14, 2022

If you find yourself with $50k from a will, a trust, a work bonus or your parents, you may be wondering what you can do with it. Many options exist. You can use it to improve your financial situation by paying off your debts or investing in an emergency fund. Investing the money in stocks, bonds, exchange-traded funds (ETFs) or a real estate investment trust (REIT) are ways to grow the money. Funding a child’s education or using the money as a down payment for a home can be an option. In this article, Benzinga looks at various options that are available to someone looking to invest $50k. 

First Steps When Investing $50k

Before you look at ideas for what to do with $50k, take stock of your current net worth, emergency resources, debt level and investment strategy.

Get an Emergency Fund

It is recommended that you have an emergency fund set aside of about 3 to 6 months of living expenses, in case you experience financial disruption from job loss or a sudden medical emergency. You can invest this money somewhere safe and liquid to ensure you have it if ever it were necessary. Money market funds are good liquid investment vehicles as are easily convertible U.S. Treasury notes.

You can keep a portion of the $50k in your rainy-day fund or a checking account. This buffer ensures that cash is available when you need it without any downside risk. The COVID-19 pandemic showed there has never been a better reason to have an emergency fund, which could come in handy if you are placed on leave or require additional financial assistance due to external circumstances. 

Pay Off Debt

If you have debt, you could use some or all of the $50k to pay it off. It is preferable to minimize credit card and other debt as it usually carries a high-interest rate and can impact your credit score. The investment and savings ideas presented below are unlikely to offer returns as high as the 20% or higher interest rate that many types of debt can incur. It is important to pay off your debt to prepare for the next steps of your financial journey.

Consider Your Investment Style

Decide if you are a passive or active investor. Active investing takes time to research companies and place trades. If you are a full-time employee, you may prefer to invest in passive funds to save time. Passive investing includes mutual funds and exchange-traded funds (ETFs). However, some investors prefer a hands-on approach to investing, which could include outsourcing your investment decisions to a professional. 

The Best Places to Invest $50k

You can find many options to invest $50k. Depending on your time, skills and the nature of your work life, you can choose an active or passive investment style. Below, Benzinga provides a list of investment ideas. 

Robo Advisors

A robo advisor may be the most time-efficient way to invest. These brokerages, supported by artificial intelligence, are relatively new to the market. You indicate your preferences and risk tolerance from which funds and ETFs are selected to confirm with the robo advisor’s algorithms Robo advisors are low-cost and could range from 0.20% annually although some are lower, like Vanguard’s advisory fee of 0.15%. 

Stock Market

Individual stocks represent ownership in a company. Changes in the stock price impact the value of your portfolio. Rather than buying expensive stocks based on short-term market trends, you or your advisor may choose stocks whose share price is expected to grow (growth stocks) or stocks that have a strong history of performing well (value stocks). Stocks enable you to enjoy capital gains from a higher share price and dividends. You can invest in individual stocks by opening a brokerage account with firms such as E*TRADE and TD Ameritrade (NYSE: SCHW). Many brokers allow investment into fractional shares as well.

Real Estate

Although property can be a good investment, $50,000 may not be enough to purchase a home but can form the down payment on a property. You almost might invest in real estate through a real estate investment trust (REIT), which is usually publicly traded like a stock. REITs include residential and commercial real estate, such as buildings, residential property and mortgages. Companies like Streitwise and Fundrise allow you to make investments in a REIT with contributions as small as $500. 

Bonds 

Bonds are debt instruments that allow you as an investor to make a loan to a borrower. Upon investing, you receive monthly payments referred to as a coupon, and the invested amount is paid back to you when the bond matures. Examples of bonds include Treasury securities, municipal and corporate bonds. The yield on a bond is driven by interest rates, the borrower's ability to repay it and the perceived riskiness from market participants. 

Mutual Funds

Mutual funds pool together investors’ money into a strategy or asset class. Mutual funds are usually the choice of most company 401(k) plans. The fund could be a passive index or it could be actively managed, with decisions made by a fund manager. However, actively managed mutual funds have a higher expense ratio than the index fund. 

ETFs

ETFs, or exchange-traded funds, trade like stocks but also have characteristics similar to mutual funds. They are indexed and tend to have low expenses in addition to being transparent. Mutual funds report holdings a couple of times a year. 

CDs

Certificates of Deposits (CDs) are Federal Deposit Insurance Corporation (FDIC)-insured savings that run for a fixed period, from as little as 3 months to many years. If you withdraw your money early, you may face early withdrawal penalties. One strategy is to ladder these securities to ensure that you always have one that is coming due, which presents an opportunity to build cash flow. Banks and brokerages offer CDs, which are a good instrument if you need some time to think about what to do with $50k.

Fund an Individual Retirement Account (IRA)

With part of your $50k, you could fund an IRA. The annual limit for an IRA contribution in 2020 was at $6,000, with an extra catch-up of $1,000 for taxpayers aged 50 and older. You may be able to contribute to your IRA if the income you earn is below the required threshold. 

You can use your $50k to make up for your paycheck by increasing your contribution to your employer-sponsored retirement account. Plans like a 401(k) or 457(b) are funded by deferrals from your paycheck, so you couldn’t technically use part of the $50k to make a contribution. Money deferred into a company retirement account increases the amount you save for retirement and ensures that you receive the full amount that may be matched by your employer. The current annual contribution limit is $19,500 for 2021, with a $6,500 additional catch-up contribution for people over the age of 50.

College Savings Plan

Some or all of the $50k could fund a savings plan for your children’s tuition via a 529 plan. This fund can be used to pay for the cost of tuition, books and other college expenses. Some states offer tax incentives when individuals choose to save for their children’s future tuition. Although incentives vary across states, a 529 plan is a credible way of saving for your children’s or loved ones’ educational future.

You Can Invest $50k in a Number of Ways

If you are fortunate enough to have an extra $50k, you can invest passively via robo advisors or actively in stocks, bonds, real estate, ETFs and mutual funds. Where to invest money depends upon your financial situation and your financial priorities. Come to Benzinga to get actionable market intelligence to get actionable trading ideas, real time news and financial insights and much more.

Frequently Asked Questions

Q

What can you do with $50k to make money?

A

You can use it to pay off any debts you owe, create a rainy-day fund or invest in stocks, mutual funds or ETFs. You can increase your contributions to your 401(k) retirement account and create a savings account for your kids’ future tuition. 

Q

What is the best way to invest 50k?

A

You could consider several options. For passive investors, you can invest in ETFs or use a robo advisor. Alternatively, you can invest in REITS, stocks, bonds, ETFs and mutual funds.

Q

Is 50K a lot of money?

A

Depending on your circumstances, 50K could pay your living expenses for about six months. You can also use the money to invest and grow it.

About Henri Kouam

Henri Kouam is an economist and machine learning enthusiast. He currently builds Machine Learning models to help clients across Europe forecast a range of asset classes such as cryptocurrencies while working with, the Nkafu Policy Institute, an African-based think tank to help inform economic policy. He equally works as a consultant for NY-based ”Global Wonks”, where he has named wonk of the week twice due to his actionable intelligence on North America.