For most people, choosing where to invest and how to navigate the hundreds of different options for financial can be overwhelming. With some investments, the risk is too high to stomach, but lower risk options – like a savings account – just don’t seem to be the best use of money. But investing wisely is crucial to maintaining financial health, especially when you’re self-employed and live location independently.
Here, we’ll talk about the best way to invest $10,000 so you can achieve financial independence and chase your dreams of becoming location independent. Please remember that you invest at your own risk, and should speak to a financial planning or investment professional if you have any questions or concerns about what investments are right for you. This article should not be taken as investment advice.
The Best Way to Invest $10,000: 8 Options To Choose From
1. Peer-to-Peer Lending
If you’re looking for a fixed income investment opportunity, peer-to-peer lending (P2P) is an ideal option. Essentially, you invest your desired amount and earn anywhere from 7 to 10% interest on your investment return. You can invest as little as $25 although a the recommended initial investment is $2,500. There is some risk involved with this type of investment, but since interest rates are high, you can usually cover any losses.
How does it work? Online marketplaces connect potential investors with borrowers, screen borrowers, and service the loans over a set period of time. Most of these lending sites operate online without any brick-and-mortar locations, making it easy to invest and track those investments from anywhere in the world.
The leading online marketplaces for P2P investments are Lending Club, Prosper and Zopa. If you’re based in Europe, you can check out Twino and earn interest of 11% and above. They have a really handy tool on their landing page where you can adjust how much capital you want to put up front and see what your return will be over a 12 month period. For example, if you lend 10,000 euros, you can earn a return of 11,380 euros over 12 months.
2. CD’s and High Yield Savings Accounts
Some people are totally risk-averse and don’t feel comfortable investing thousands of dollars that could potentially result in a loss and that’s fine. If you’re one of these people and you’re looking for a safe investment, opt to invest in a CD or other high yield savings account.
A CD is a certificate of deposit, and is similar to a normal bank account in that the investment is virtually risk-free. You can get CDs from financial institutions such as banks and credit unions and in the USA, the FDIC or the National Credit Union Administration insures them. If you invest for the long-term, you’ll generally earn a higher interest rate than if you choose a short-term investment.
There are tons of options when it comes to choosing CDs or high yield savings accounts, we’ll talk about the two most popular. The Charles Schwab High Yield Investor Checking Account doesn’t require a minimum balance or charge monthly service fees. When you open an investing account, you also automatically get a Schwab brokerage account, but there is no minimum investment amount for that account either. They also offer traditional financial services that brick-and-mortar banks do including ATM and debit cards. This bank account is highly recommended by digital nomads since they reimburse all ATM fees, making it a great choice for travel as well.
Another popular high yield savings account comes from EverBank. They have a handy tool that allows you to estimate your interest rate returns based on your starting balance. If you put $10,000 into their high yield account, you can expect a 1.21% APY, which results in earnings of $120 in one year. Compare that with Bank of America’s measly .01% APY and you can see why these accounts are a great choice for storing your funds.
3. Invest in the Stock Market
When it comes to the stock market, you can choose to invest in two ways: do it yourself or opt to have someone else manage the process for you. If you want to invest in stocks on your own, tools such as E*trade and Scottrade offer online brokerage services so you can invest exactly the way you want. Both websites offer educational guides and tools to help you learn how to manage your investments properly. You should only consider managing your investments yourself if you have a good deal of experience and a higher tolerance for risk.
If you prefer to have someone else manage your stock market investments, consider mutual funds. Instead of investing in individual stocks, you’ll buy into a mutual fund that purchases small amounts of several different stocks in one package, based on the assumption that diversifications mitigate risk. You can opt to buy just one mutual fund or several to diversify your investments and decrease risk. In general, buying one individual stock brings higher risk, but also the opportunity for a higher payoff, while mutual funds are considered a safer bet. The most popular mutual funds tend to be Vanguard and Merrill Edge.
4. Autopilot Investing
If you’re new to investing or just don’t have the time and patience to track your own investments closely, think about autopilot investing. In this type of investing, you sign up for an online investment management platform, which handles everything for you. These platforms are also known as robo-advisors and for a fee; they manage everything from choosing investing options to tax loss harvesting and asset allocation.
If you choose to invest up to $10,000, the annual fee is about .25%, which translates to around $30 to $40 per year depending on the platform. One of the most popular platforms is Betterment. You start by entering your financial information including any existing investments and long-term goals. The algorithm then runs investment selection and builds a portfolio tailored to your financial situation. They also feature integrated tax software, which can help you achieve personalized tax goals such as lower tax rates and other tax advantages.
5. Buy Real Estate
It’s no secret that investing in real estate is a great way to use funds to increase existing wealth. Whether you’re expanding your home to accommodate renters and generate passive income or choosing to pool your funds with friends to purchase a property, the possibilities are endless.
The problem with real estate investments is that they are often times out of reach for many individuals. For example, if you’re trying to invest $10,000 in real estate, that’s often not even enough to cover a down payment, let alone your monthly obligations. That doesn’t mean that you can’t invest in real estate.
In fact, one of the easiest ways to get into real estate without a lot of capital is to opt for a real estate investment trust (REIT). These trusts are companies that own commercial real estate that produces an income. These properties can include everything from warehouses and shopping malls to hospitals and office buildings. So instead of owning a particular property, you’ll own a portion of multiple properties within the REIT’s portfolio.
The benefits of investing in an REIT are numerous. You have high liquidity meaning you can buy and sell just like you would in the stock market. They’re also inherently diversified thus lowering your risk and offer higher yields than mutual funds or individual stocks. There are also tax advantages in terms of capital gains obligations since properties aren’t’ sold nearly as often as stocks within mutual funds.
6. Retirement Accounts
If you’re interested in investing, you probably already know how important it is to start saving for retirement. There are two main types of retirement accounts known as the traditional IRA and the Roth IRA. With a traditional IRA, your contributions are tax-deductible and any earnings within the IRA are not taxed. However, when you start to pull the money out during your retirement, all withdrawals are taxed as income.
The structure of the Roth IRA is essentially the same except when it comes to taxes. Roth IRAs don’t receive a tax break on contributions like traditional IRAs, but withdrawals during retirement are tax-free. In general, if you think you will be in a lower tax bracket when you retire, it’s recommended that you choose a traditional IRA. If you’re unsure which is best for you, talk to a financial advisor who can help with your specific situation.
7. Pay Off Debt
One of the smartest things you can do when investing your money is to pay off any existing debts you may have. Whether you have a bank loan, student loans or credit card debt, you want to pay that off as soon as possible. You’ll save money in the long run because you won’t pay as much interest if the term of your loan is a lot shorter. When it comes to personal finance, it makes most sense to pay off significant debts before embarking on other investment endeavors.
8. Build an Online Business
One of the best things you can do with $10,000 is to invest it in yourself. To do this, you can build an online business that offers you a passive income stream and consistently grows your wealth year over year. You can choose to sell products through your website or offer services and education through a blog.
Whatever you decide to do, make sure to monetize your site. You likely won’t need all of the $10,000 to get your online business started and you can use the extra funds to increase your following, attract advertisers or invest in one of the other ways on this list.
When it comes to investing, there is no one size fits all solution. Investments will vary not only on how risk averse you are, but where you stand financially and what your long-term goals are.
Most people will choose a combination of the investments listed above, and it’s generally good advice to diversify your investments. These ideas should be a good jumping-off point to get you thinking about the best way to invest $10,000 so you can achieve your dreams of being location independent and experiencing everything the world has to offer.
This article is for entertainment purposes only and should not be interpreted as financial advice.