The Best Way to Invest 50k: It’s Not Rocket Science

So, you have $50,000 – be it from an unexpected windfall, an insurance payout, a settlement, a hefty bonus, or your hard-earned savings – and you are planning to invest it.

Though plenty of options exist for investing your money, the best way to invest 50k depends on your financial goals, time horizon, and risk tolerance.

However, we have detailed below a simple, two-pronged investment strategy that we believe will apply to many investor profiles.

Part 1: Secure your future

The first part of the strategy focuses on securing your future. Then, the remaining money is invested in instruments that can give significant returns.

Max out your retirement accounts      

Maxing out the limit of your individual retirement account (IRA) and 401(k) plan is considered to be one of the best ways to invest some of your money. For 2024, the maximum you can contribute to an IRA is $7,000 ($8,000 if you’re 50 or above).

Similarly, the employee contribution for 401(k) is $23,000 (up to $69,000 employee and employer contributions combined). You can also make a $7,500 catch-up contribution (above the employee and employer limit).

Since the maximum amount is more than $50k, the best strategy will be to contribute enough to 401(k) to get the full match, and then max out the IRA contributions.

Contribute to your HSA (health savings account)

An HSA is often an overlooked investment tool, but it is useful for paying for healthcare costs, including deductibles, copayments, and coinsurance.

The contribution limit for 2024 is $4,150 for self-coverage and $8,300 for family coverage (you can add $1,000 more if you are 55 or older).

Contributing to an HSA has many advantages. Such contributions are tax-deductible, and money withdrawn for qualified healthcare expenses attracts no taxes or penalties. More importantly, money in the HSA account can be easily invested in other high-return instruments, such as stocks, bonds, mutual funds, ETFs, and more.

Also, the funds can be carried over from year to year, and you can use money in your HSA account on anything if you are 65 years or above.

A high-deductible health insurance plan is required in order to contribute to an HSA.

529 college savings account

Now that your retirement and health costs are secured, it is wise to secure your child’s education as well. A smart way to do this is to fund a 529 college savings plan. The money in these accounts grows tax-deferred and qualifies for tax-free distributions.

529 funds can be used to pay qualified education expenses, including college tuition, computers, books, accommodation, and more. Also, up to $10,000 annually can be used towards tuition expenses.

Moreover, leftover 529 money can be rolled over into a Roth IRA, transferred to another beneficiary, or used for a nonqualified expense. Such uses, however, can attract taxes.

Part 2: Make your money work harder

Now that you have secured your and your family’s future, you can look for ways to maximize your own money. Below are some of the best ways to invest 50k to make your own money work harder.

Invest in savings accounts and CDs

If you don’t want to take on too much risk, savings and certificate deposit accounts (CDs) could be a smart way to protect your principal and earn a nominal return (5% or more presently).

CDs typically last three to 60 months and allow you to lock in an interest rate. You will have to pay a penalty if you withdraw money before the agreed-upon period, therefore you must only choose CDs if you don’t need the money immediately.

Savings accounts, on the other hand, don’t levy an early withdrawal penalty, but interest rates can fluctuate.

Invest in the stock market

If you are okay with some level of risk, you can consider investing in the stock market to potentially earn significant returns.

Investing in individual stocks is perhaps the most common route, and if you invest in something that becomes the next Apple or Tesla, you can earn handsome returns.

Conversely, such investments could prove risky if the company you invest in faces financial challenges. 

Those who don’t want to take too much risk but still want to invest in the stock market can consider mutual funds. Such instruments pool investors’ money to invest in a portfolio of stocks, bonds, and commodities, thus diversifying your investment and reducing risk.

ETFs (exchange-traded funds) are another option for risk-averse investors. They are similar to mutual funds, except they trade on major stock exchanges. Most ETFs are index funds, which means they are designed to mimic the return of an index, such as the S&P 500 or the Russell 2000.

Invest in real estate

Real estate is another investment option that can generate major returns within a short timeframe. While $50,000 may not be enough to buy a property there are other ways to invest in real estate.

For instance, you can invest in real estate through a REIT (real estate investment trust). Most REITs are publicly traded on the stock exchange, but some are private.

Different REITs invest in different types of properties, such as commercial and residential. You can invest in real estate through REITs with as little as $10.

Crowdfunding platforms are another way to invest in real estate. Such platforms enable small investors to buy part of a property, similar to buying a share.

The bottom line

Whether you have $50k or even more, you must understand that there is no ideal investment strategy or one-size-fits-all approach.

However, outlined above is a sensible, two-pronged approach, designed to work for many investors. In short, the two steps are to secure your future with savings accounts and retirement funds, and to maximise your money with sensible investments.

If you’re unsure of what direction to take, seek the help of a financial advisor, who can help you design an investment plan tailored to your needs.

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