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- If you have $20,000 set aside to invest, you can allocate your money across more than just one investment or account type.
- You can generally invest using financial advisors, online brokerages and investment apps, or robo-advisors.
- Your investment options include stocks, bonds, ETFs, mutual funds, retirement plans, real estate, and much more.
- Consult with a fiduciary advisor to make sure you are doing everything necessary to grow your wealth in this challenging time »
If you’ve got $20,000 to invest, it can be overwhelming to figure out where to put the money to build wealth.
When it comes to the “how,” you can generally invest through traditional financial advisors and investment firms, online brokerages, and robo-advisors. As for the “what,” you’ll have access to various investment choices, including retirement savings accounts, education savings plans, trust accounts, custodial accounts, and more.
While it can be tempting to take the safe route and plant your $20,000 in one spot, experts recommend diversifying your portfolio by spreading money across multiple investments. Keep reading to learn more about your options.
Set up a brokerage account
Online brokerages are like retail centers for investments and other wealth-building products. These platforms offer a wide range of options, including investment accounts, retirement savings accounts, cash management accounts, education plans, and more.
Some of the best brokerages give you access to commission-free trading, investment tools and research, copious investment choices, and human advisors. In addition, you’ll want to pay attention to your brokerage’s minimum account size requirements and management fees.
Passively invest with a robo-advisor
Another option for investing $20,000 is to set up an account with a robo-advisor. This option is great for passive investors who prefer to sit back and watch their money work. Unlike a brokerage account, where you’d be responsible for placing your own trades and managing your investments, robo-advisors do everything for you.
You’ll mainly be responsible for paying the‘s fees and deciding when to invest more money. Not all robo-advisors have account minimum requirements, but you’ll typically have to pay an annual asset-based fee, flat fee, or monthly subscription fee, depending on the advisor.
For instance, Betterment and Ellevest both have $0 minimum balance requirements. But their advisory fee structures differ. Betterment charges 0.25% to 0.45% (the 0.45% annual fee applies to investors enrolled in the premium plan) for its investment accounts, while Ellevest charges monthly subscription fees ranging from $1 to $9.
You don’t have to choose one over the other, though. Some brokerages like Vanguard also provide a robo-advisor option, so that gives you two new possibilities: (a) open a brokerage account and robo-advisor account under the same company, or (b) set up an account with a robo-advisor at one company and open a brokerage account at another investment company.
Work with a financial advisor
A traditional financial advisor could also help you grow your $20,000. These advisors usually cost more than the brokerage or robo-advisor route, but they present a unique feature: face-to-face consultations with a human professional who can talk you through the wealth-building process.
Not all advisors require minimum account balances, but some may ask for an account size of up to $2 million in order to get started. Account minimums vary per financial advisor, so it’s best to ask a prospective advisor about their fees before you begin.
Another thing to consider is that a financial advisor’s fees might include asset-based fees, hourly fees, or fixed fees. Asset-based fees represent a percentage of your assets under the advisor’s management; these typically range from 1% to 2% of your portfolio.
When it comes to fixed fees, you could pay between $1,000 and $3,000 per year. And hourly fees may range from $100 to $300, depending on your advisor.
Stocks: Stock-trading is one of the most common forms of investing. Public companies issue out stocks on trading exchanges when they want to expand business operations and fund company growth. So when you invest in stocks, you purchase a small portion of ownership within that company.
ETFs: ETFs are investment funds that pool investors’ money together to invest in stocks, bonds, and other securities. You can think of them as a melting pot of different securities. Both ETFs and stocks trade on exchanges and possess the capacity to gain or lose value. However, ETF investing is generally less risky than stock trading.
Bonds: Bonds are debt investments that allow you, the investor, to loan money to governments or corporations who need to raise capital for projects. Bonds typically have a maturity date, so once your bond term expires, you’ll generally get back the face value of the amount you invested with interest.
Mutual funds: Similar to ETFs, mutual funds are investment funds that contain multiple securities and trade on stock exchanges. One of the differences between the two is that mutual funds have managers, while ETFs don’t. Specifically, each fund has a professional manager that oversees the fund’s performance and holdings.
Options: Options are contracts that give you the choice, but not the obligation, to buy or sell an investment at a certain price within a specific period of time. Most brokerages charge between $0.50 and $0.65 for options contracts.
Real estate: Real estate investing could be another good option when it comes to allocating your $20,000. There are several ways to invest in real estate, but you can generally do so through three ways: Buy and flip real estate properties on your own, invest in real estate investment funds such as real estate investment trusts (REITs), or invest through real estate crowdfunding investment platforms.
Cryptocurrency: Cryptocurrencies are virtual assets that individuals and businesses use as forms of payment. These virtual coins are also highly encrypted, so they cannot be duplicated. You can usually invest in cryptocurrencies through exchanges or investment apps.
Precious metals: Many brokerages give you the option to invest in gold, silver, platinum, and other precious metals. And even if you don’t invest directly in these metals, you can invest in mutual funds or ETFs that are invested in companies that produce precious metals.
Employer-sponsored retirement plans: You can also invest in a retirement plan. Most employer-sponsored retirement plans let you contribute up to $19,500 (2021 contribution limit) plus an additional $6,500 if you’re age 50 or older. In addition, if your employer offers a match, the total amount you both can contribute is $58,000 in 2021.
IRAs: Brokerages, banks, and other investment platforms generally allow you to open individual retirement accounts (IRAs). Like most employer-sponsored plans, you can open either a traditional (pre-tax) or Roth (post-tax) IRA. But the main difference between these plans and employer-sponsored plans is that you don’t have to be employed to open one. IRAs also have lower contribution limits. You can contribute up to $6,000 per year, plus an additional $1,000 if you’re 50 or older.
Annuities: These are contracts insurance companies provide. When you invest in an annuity, you’re asking the insurance provider to return the amount you contributed, with interest, in periodic payments in your later years.
Education savings plans
529 college savings plans: A 529 plan allows you to contribute tax-deferred money toward your child’s education. With 529 plans, you can save for qualified educational expenses such as tuition, books and supplies, and more. Plus, any earnings or withdrawals are tax-free, and you generally won’t have to worry about any contribution limits.
Coverdell Education savings accounts (ESAs): Coverdell ESAs are custodial accounts that also let you save for a child’s or designated beneficiary’s education costs. The difference between the ESA and the 529 plan is that ESAs have a $2,000 annual contribution limit for each child or beneficiary.
UTMA/UGMA accounts: Most brokerages and investment platforms offer these custodial accounts. UTMA/UGMA accounts are basically brokerage accounts for minors. So you can invest in the account and then transfer the account’s holdings to your child/dependent when they reach their state’s age of majority (typically 18 or 21).
You should only invest $20,000 if you don’t need the money right now. Before you begin, it’s important to make sure you’ve got an appropriate emergency savings fund so that any potential investment losses won’t thwart your finances. Investing is a great way to grow wealth over time, but it also presents risks.
Before you get started, think about what kind of investor you are. If you like the sound of actively trading securities on your own, you should consider investing with a self-directed brokerage account.
Financial advisors or robo-advisors could be a better option if you prefer hands-off investing. But remember that you don’t have to limit yourself to just one investment style. You can utilize both active and passive investing strategies while putting your $20,000 to work.
Rickie Houston is a wealth-building reporter at Personal Finance Insider who covers investing, brokerage, and wealth-building products.