John Hughes has an interest in financial literacy, not only for himself but for others that want to do better with money. That is why he's here sharing his financial knowledge with others.
What do you picture when the figure $50,000 strikes your mind? For some, it is a year’s salary. For others, it is what they make in a month. For others, it is an amount that they could probably dream of coming across if they win the lottery. The bottom line is that we all have varying financial muscles, and a $50,000 check will definitely hit us differently.
We will go ahead and assume that you have the check and want to invest. We won’t get into the details of how you got that check.
This is a significant amount that can set you off perfectly to a successful investment journey. Do not be blinded by the record figures being recorded by giants such as Amazon, Apple, and Google and let them discourage you. When investing, you need to start small, and $50,000 is not as little as you might think. It might not be enough to buy a set of rental units or fund a full stock portfolio, but it is sufficient to set the ball rolling. It is vital to be prudent with your investment with such an amount since you have very little change left to pay for any investment mistakes.
In this piece, we will go over some of the ways to invest $50,000 profitably and highlight important things you need to be aware of if you pursue this course. Read on;
Investing 101; What is Investing?
The term investment is often thrown around in various circles, but not everyone truly understands what it means. Several ventures that people partake in are regarded as investments when, in the true sense, they are not even close to that. With your $50k at hand, it is important to distinguish investments from other related ventures to ensure that you are doing the correct thing.
Investing is the process of allocating money to an asset, or committing funds to an endeavor to gain profit. The core aspect of investing in the expectation of a return that can come in the form of a price appreciation of the asset you invest in. The investment spectrum is wide, and you can invest in just about anything.
However, there is a degree of risk in all investments. In most cases, the risk and return go hand in hand in that lower risk translate to low yields and vice versa. Risk levels can vary significantly in a specific asset class. This way, it is prudent to analyze the risk for a particular asset type and not look at the entire class when investing.
Investment Styles To Consider
If you are looking to invest, here are some of the common styles that you will take;
Active vs. Passive
The main aim of the active investment is beating the index by actively managing your investment. This suits people who might have the $50,000 but want to venture into investment fully. On the other hand, passive investment is where you take an inactive approach and let the money work for you. There are pros and cons to each way of investing, and it helps to understand them before you pick aside. Furthermore, different types of investment ventures suit either side.
Growth vs. Value
The difference between these two styles goes down to the expected returns in a specified time. Growth investors, lean towards the high-growth companies that have higher valuation ratios. These investments might not yield the most gains in the short term, but the net worth of your investment grows steadily over time.
On the other hand, value investors have lower Price-Earnings ratios and generate higher dividends in the short term. In a nutshell, most of the returns generated in a value company are divided among the investors. For the growth companies, the gains are reinvested in the company for future value.
Factors that Determine How You Invest $50,000
If you have this money in an account, you can invest in anything you want. However, you do not have that free will if you wish to invest ‘profitably.’ This way, it is critical to analyze the prevalent conditions before determining the best investment. Read on;
Investment Goals
If you want to invest $50k, you must have some goals of the endgame. Do you want to kickstart your investor side and hope to pump in more money later? Did you land a windfall and want to create a steady source of additional income to supplement your salary? Do you want to grow value over time? These are the questions that can help you uncover your investment goals.
Time
The time aspect of it is related to the goals in some way. It defines how long you want to hold the investment. You could wish to invest in a venture that gets you an additional $10,000 and get on with your life. Alternatively, you might want to invest in a long-term asset that will generate money consistently.
If you have a short time frame in mind, consider a less aggressive strategy. You do not want to find yourself in need of the money when the markets are down as you could be forced to take a loss. If you are looking to secure your retirement, you might have a longer time to invest.
Risk Appetite
This is perhaps the most important aspect to consider. All the different forms of investment have various risk levels. It all goes down to how you acquired the money and what you are willing to take in the worst-case scenario. If you lost all the $50,000 in an investment, would your day to day life be extremely crippled, and you won’t even be able to afford a simple meal?
In such an instance, consider your risk appetite to be very low. If your life would go on normally, your risk tolerance is high, and you have the benefit of venturing into the high risk but potentially high gain investments.
Emotions
This factor might seem bizarre, but it helps dictate where you can invest. We have the extremely emotional people who can make panic decisions when things seem to go wrong and the cold ones that can stay calm even in adversity. Some investments are extremely volatile, and you need to stick through the bad times and align with your investment goals without letting your emotions to check-in.
Now that you are well equipped with some vital knowledge you should have before investing let us look at some of the ways you can invest and get returns. Read on;
Ways to Invest $50,000
1. Savings Account
This is perhaps one of the most low-risk investments you can make. It might not stand out as an out and out investment, but you can get some return out of the money you deposit in the account. This fact makes depositing cash in a savings account an investment.
When running a check on potential investments, look into the rate of return, risk, and liquidity of the said asset. For a savings account, you do not expect a very healthy rate, but most of the accounts available will offer something about 1%. On the risk aspect, this is where savings accounts stand out.
When compared to other investments, few ones match the low risk associated with these accounts. Money in savings accounts are FDIC insured, and even if the bank dissolves, you are guaranteed of getting the entire $50,000. On the liquidity aspect, savings accounts are very liquid. All you have to do is to visit the bank branch or ATM to get the money. That explained a savings account is a highly liquid, low risk, and low return investment.
When shopping around for a savings account, it is paramount to look out for the one that offers the most favorable terms for you. Luckily, online banks have improved the rates in the market since they have fewer overhead costs and can give you better rates compared to the traditional ones.
As of April 2020, some of the best savings accounts include;
While the percentage APY stands out as the most attractive feature to look out for, it helps to dig deeper and assess other vital aspects such as the FDIC insurance status, the number of withdrawals allowed, and customer support, among others.
2. Certificate of Deposits
In some settings, you will find CDs being classified as a type of saving account. We will leave that debate for another day, as what we are sure of is that CDs are a great way to invest your $50,000. They are a form of investment that can suit people of all ages, particularly those who want a low-risk investment to park their cash. The downside with CDs is their low liquidity, and if you do not plan to use the money in a year or more, CDs might be your best bet yet.
A certificate of deposit is a low risk and relatively low return investment that is sold by banks and other financial institutions. Here you give the bank a specified amount of money, and they will keep it for the agreed time after which the CD will mature, and you will get the deposit and interest accrued. Note that all CD returns are taxable as income unless they are in a tax-deferred or tax-free account. CDs are among the safest investments one can make.
When investing in CDs, two things that you need to determine before picking one are;
Time
CDs are issued for a fixed period. Here, you will want to establish when you will need the whole part of the $50,000. The longer you park your money, the higher the gains. However, there are some CD investment strategies you can employ to gain more and still and maintain a desired level of liquidity.
Rates
The rates given for certificates of deposits are important to check before buying them. The rates can help you to determine how long you will lock up the money for. The rates are always tied to some economic factors such as inflation, but some CDs can protect you from this.
Concerning the rates, it is vital to differentiate between the Annual Percentage Yield (APY) and the Annual Percentage Rate (APR). The APY is what you earn over the multiyear life of the CD, while the APR is the base rate offered by the bank.
Types of CDs
When investing in CDs, you will come across several types. Here are the common ones offered by financial institutions;
Traditional CD: These are the basic kind of CDs that offer you a set interest rate over a specified time. When the period elapses, you can withdraw the money plus the accrued interest and invest it in another CD. If you withdraw the money before the term ends, the bank charges you a hefty penalty that was specified on signing up.
Bump Up CD: These CDs let you change the interest rates that apply for your specific one when they change before your original one matures. Most of the CDs that have this clause allow you to do it once during the entirety of the period.
Liquid CD: These CDs have some level of liquidity as you can withdraw some part of the initial deposit without incurring a penalty. These CDs have lower interest rates than traditional ones that do not let you make any withdrawal.
Brokered CD: These are any kind of CDs offered by brokerages. They have access to several types of CDs offered by banks, and they have higher interest rates as opposed to buying one directly. However, most brokerage accounts come at a fee that you need to pay before holding one.
Zero-Coupon CD: These CDs do no pay annual interest. Instead, they reinvest the payments so that you earn interest on a higher deposit. However, you will pay more taxes on reinvested interests.
Now that you are well versed in the type of CDs and things to consider before buying one, you should be well on your way to investing your $50,000 prudently. The first thing you will need to do is to determine your term. Next, choose the type of CD that suits you.
Note that all the features added to the traditional CDs to make up the different types affect the rates. If you do not want to get fancy, stick to the traditional ones. Lastly, review the rates, taking into account inflation projections and taxes accrued to see how much you will be making at the end of each investment period.
CD Laddering
This is a CD investment strategy that lets you gain high yields while still maintaining a desired level of liquidity. It is suitable for those that cannot determine whether they will need some time in a couple of months and would rather keep their options open rather than finding themselves in a tough situation.
Laddering is simple. If you have the $50,000 and decide to invest it in CDs, split it up. It depends on how much you would want to be available, but here, we will go with a hypothetical scenario. Say that you split it four ways so that you have $5,000, $10,000, $15,000, and $20,000. By laddering, you will invest the money as follows
$5000 in a 6-month CD with an APR of 1%
$10,000 in a one-year CD with an APR of 2%
$15,000 in a three-year CD with an APR of 3%
$20,000 in a five-year CD with an APR of 5%
In six months, you will have the money accrued from the first CD available to you. Here, you can choose to reinvest it into a one-year CD at a higher rate. After six months, the one-year CD will have matured, and you will have the money at hand. If you choose to reinvest the entire amount in another one-year CD, you will still receive some cash after six months.
Once a ladder takes off, you can schedule it in such a way that you have some money at hand every one year or six months while still locking your money in the high yield and long-term ones. This strategy offers you the benefit of accessing your cash penalty-free since the CDs mature regularly. Furthermore, you can gain from higher interest rates since you are investing in long term CDs.
3. Real Estate
You might be wondering how real estate is appearing on the list of investment options for a sum of $50,000. There are several ways to invest and make returns in the real estate field even if the amount of money you have cannot buy a piece of land and finance the construction of a full commercial or rental building. The degree of liquidity and risk involved in real estate investment depends on which path you take. Read on and find out various ways of investing $50k in real estate;
Fix and Flip Properties
One of the best ways to get a return on real estate is by taking advantage of distressed properties in the market. You can find several of them in poor condition, and all you need to do is buy on an as-is basis. They will come cheap, and the $50k can pay for the down payment of that property.
Take an example of a house that is listed for foreclosure, valued at around $250,000. Due to the poor condition and scenario that ties the seller’s hands, you can get it at approximately $150,000. This way, the down payment, which is usually 20% of the value of the property, will be $30,000. You will be left with some amount that can be used to repair the house and cater for the closing costs.
Once you repair and reinstate the home to its optimal state, you can sell it at $250,000 and use the proceeds to pay back the debt you took to pay the owner. If it was a short-term debt and you manage to get a buyer to pay you back the amount in a lump sum, you will receive a significant profit over your initial amount.
Note that this is a short-term real estate investment strategy that has its own set of risks. It is vital to do your due diligence well before venturing into it, lest you find yourself stuck with a house that you do not need and cannot get it off your books.
Rental Properties
This is one of the best ways to invest in real estate units. However, the limit on the amount we have at hand means that we cannot invest in the high-end rental units that generate a lot of money every month. Rental properties are low-risk investments that appreciate steadily. You need to consider them as a long-term investment and not expect quick returns with rental units, and here is why.
With 50k, you cannot buy a good unit in a prime area, and the best thing is to use the amount as the down payment for a unit or two. It is advisable to go for small units such as studios and tiny houses suitable for students or young people looking for an affordable place to live. The good thing about rental property is that you have a wide variety of units to choose from as long as the payment plan suits your investment strategy and goals.
Take the 50k and use it as the down payment for one or two properties. You can find small units in the 100-150k range. Negotiate to have the rental proceeds from the property go to the payment of the debt you take. With a rental property, you can live in one and let out the other to cut on costs.
After a couple of years, you will be free of debt after paying up the amount owed to the bank. From here, you will be getting rental income every month and still own two properties that will have appreciated significantly by then. Investing in rental property is a slow way to gain returns, but the risk is very low compared to the fix and flip option.
Turnkey Rental Properties
The mentioned real estate investment strategies are active since you will need to learn a few things, search the market, and probably manage them. However, some people want to invest passively and go on with their day to day activities while the money does the work for them.
Turnkey investments are perfect for you if you have no background in real estate and do not want to get your hands dirty. Find a reliable turnkey real estate investment company, and they will manage your rental property and give you the returns after deducting a certain percentage.
The downside with these companies is that they list a huge amount that one needs to pay upfront, something that is bad for those with little market knowledge. In some cases, you might not need to invest in a full property on your own, as you will be pooled with like-minded individuals. Here your amounts will be collected and used to finance the purchase of a property, after which the returns will be shared based on how much you contributed.
Real Estate Syndications
This is a high-level real estate investment that seeks to pool funds needed to finance a massive building project or purchase. Such ventures are mostly done to build malls, large residential units, and commercial units, among others. Here, the syndication is launched, and people are invited to invest in the pool.
The amount invested gives you a stake in the investment, and the returns will be divided based on this. This way, you will have very little to do with the running of the investment except for investing the $50k and collecting the returns.
4. Stocks
This is an investment strategy that seeks to grow your capital. However, note that capital growth always comes with the risk of loss. Stocks come in various types, with the common ones being common and preferred. If you do not plan on going big with stock investments, it is advisable to stick to funds, specifically index funds. The advantage of index funds is that they are invested in a portfolio of stock. This way, your risks are diversified since the money gets a broad market exposure without having to face the risk of investing in a limited class of sectors.
Another benefit of venturing in index funds is that they are held in exchange-traded funds, ETFs. These are no-load, low-cost funds that trade passively. They are ideal for buy and hold strategies, which are suitable for people looking at the long haul. Individual stocks are very risky, and the golden rule when venturing in them is to go in with money you can afford to LOSE.
Robo advisors are a great option for those who want to invest in stocks from afar. These are investment portfolios that determine a set risk tolerance for you, come up with a suitable portfolio, and manage it. This way, your investment portfolio will be fully automated and professionally managed, giving you the ideal hands-off investment plan.
5. Bonds
For a long time, bonds have stood out as the counterbalance to stocks. Stocks have the potential for high rewards, coupled with the high risk. On the other hand, bonds give your investment stability coupled with relatively low returns and low risk. The interest payments on bonds are set, and you are guaranteed to get back the whole $50k after the stipulated period elapses. However, bonds have been diluted in recent years due to the reduced interest rates.
How To Build A Comprehensive Investment Portfolio With $50,000
The best way of cushioning your money from risks is by diversification. This way, you can split the amount and invest it in various forms of investments. Note that no portfolio is cast on stone, and it all depends on your age, goals, risk tolerance, and time as explained above. If you are a young person, your strategy should be more aggressive.
For a middle-aged person, their investment strategy should look like this;
CDs and bonds – 5% to 20%
Mutual funds, stocks, and ETFs – 50% to 75%
Real estate and subsidiary investments – 0 to 25%
When investing, it helps to put some money in an emergency fund, save for education, and pay off debt. You will be better placed financially to invest and build wealth once you have gone over important aspects of your life highlighted above.
FAQs About Investing
What is the best way to invest $50,000 for cashflow?
Investing in savings can be regarded as the safest way of maintaining cash flow, but you won’t be making much out of the investment you made. Investing in stocks is also a good way of maintaining cash flow, albeit with some significant risk and significant chance of making huge returns.
The bottom line is that there are various ways of investing the amount while maintaining cash flow, but you will need to establish the kind of risk you are willing to tolerate.
What important things should I keep in mind when investing my money?
Investors tend to focus on the investment strategy, but it helps to keep some things that surround the main investment. These can be regarded as the ‘enablers’ that, in some way, determine how much money you make or lose at the end of your investment period.
One vital thing is the cost of investment. They can accrue and end up eating into your returns, a reason why you should keep them low. Reduce the tax paid on your profits by going for the tax-free and tax-deferred accounts if you qualify for one. Lastly, stick to your investment strategy and avoid making rash investment decisions.
How can I invest sustainably during a period of global economic dip?
The global economic situation is influenced by several factors, some of which might not be directly related to finance and investment. This way, it is prudent to know how to play your cards during such a case. The key is to minimize the risks since trends during such periods are abnormal.
This way, it can be hard to make a thoughtful prediction on how you can gain returns on your investment. If there is no pressing need to invest, you would rather stay put and use this time to design a strategy that can be used when things are back to normal.
What is the best way to invest 50k?
There is no fixed way to invest 50k that can be dubbed the “best” way. That is the sad truth and had there been such an avenue, I would be the first to invest. An ideal investment is regarded that way after taking consideration of several factors surrounding your situation, expectations, and economic temperatures. The best way to invest is in something that meets your expectations, exposes you to the kind of risk you can tolerate and is easy to manage as per your schedule.
Note that these three aspects are correlated since the more the risk, the higher potential of gain, and you cannot have it both ways. However, once you find the much-needed balance between the three, you can confidently call that the best way to invest 50k.
What would you do with 50k?
There is so much you can do with 50k. You can go on vacation, finish off your college debt, pay your child’s tuition fees, invest name them. A good way to find the most prudent way to spend this amount is to look at how you acquired it.
Will you come across such a sum soon, or that is probably the highest amount you have ever come across to date. Financial independence is key to living a good life that is free of debt and does not blow away your money on something lavish if you will struggle to make ends meet after that.
Have you seen how much you can do with a $50,000 cheque? Well, investment is not bound by the amount you have today as you can start small and build wealth gradually. Online investment platforms have made it easier for us to trade little sums on our gadgets and make money on the go.
If you want to invest $50,000, some of the most favorable options you can consider have been discussed above. More importantly, ensure that you go over the due diligence before pulling the plug as mistakes in investment can easily lead to the loss of your capital.
John Hughes has an interest in financial literacy, not only for himself but for others that want to do better with money.
Why are you giving advice on Bilt Wealth?
Financial literacy has been close to my heart from the period I read a couple of books and realized that I’ve been getting it wrong all through.
Since then I’ve taken it upon me to learn more about the elements of building wealth and share it with interested people. This is why I like sharing knowledge on Bilt Wealth to try and empower more people to take control of their finances and make the right decisions.
What was your earliest experience with money?
I started working while in University during my sophomore year for some content mills. I earned money but blew it all on alcohol, parties, and useless stuff.
After three years, I looked back and realized I wasted a lot of money. So the problem was not getting money, but rather the behaviors required to spend it well or the lack of it.
This prompted me to invest in financial literacy skills, and I can confirm that it has taken me closer to my goals than I anticipated
Are you more conservative or aggressive with your wealth-building?
I am a mix in a way since I do a bit of both, though with a bias towards conservative wealth building. I rely on having a solid base, which grows slowly but with low risk, say 70%.
The other 30% is for aggressive investment where I am exposed to higher risks, but potentially higher returns.
From the scores, I can say am a conservative wealth builder and look for long-term gains.
If you could give people one piece of advice about money, what would it be?
It is not easy to control how much money you make, but it’s all within your quarters to determine your behavior with money. The latter are what determine your attitude towards investments, wealth building, and your path to financial success.
Work on these and you’ll be home and dry. Plus, financial literacy is not obvious, and be open to unlearning and learning new stuff.
