When you achieve a financial goal, such as saving $20,000, it means being assertive in making decisions about how and where to invest that amount so you don’t lose it.
In case you didn’t know, the big goal of investing your money is to receive passive income. The more time and amount of money you invest, the greater the potential for passive income can be. Many people who manage to save a large amount of money, such as $20,000, and don’t know where to put their money, might want to check some of the 5 options we put here. (NOTE: no investment is guaranteed, that means that they carry certain risks).
1. Paying off your debts
Paying off debt is not an investment in itself, however, the benefits of using $20,000 to pay off your debts will allow you to have more money in the medium and long term (just as if it were an investment), especially when you pay off high-interest credit card debt.
Just to give you an idea: credit card interest rates are at historic levels of over 20% (around 23%). Not even the most seasoned investors are able to obtain such a high and constant yield. In short, there is no point in investing your $20,000 in any investment option, if the interest on your debts will take its toll and eat up your potential profits.
2. Put it in a high-yield savings account.
It’s true that when you’ve saved such a hefty amount as $20,000, you want it to earn you a profit. But do you have an emergency fund and are you prepared for any accident or natural eventuality?
Before you think about any other investment, you should put your money or part of it in a high-yield savings account, so you have it available for any emergency. When you put your cash in these accounts, you have a fixed annual rate of return, so your money grows over time and without any risk.
3. Invest in a retirement account
Even though many American workers know about retirement accounts, both 401(k) plans and Individual Retirement Accounts (IRAs), they don’t take advantage of them. Not only can you make voluntary contributions, where you can include $20,000 or more, they are also among the most tax-advantaged accounts. The main objective of these accounts is to provide you with passive income for your retirement.
On top of that, in the case of 401(k) plans, some employers match your contributions, which means that if you pay in $20,000 over time, you may be able to get another $20,000 from your employer.
4. Invest in a brokerage account
Brokerage accounts are investment accounts that you open with a broker or online broker. Having an advisor will guide you through the investment process.
In fact, he or she can make recommendations to grow your $20,000, such as dividend stocks, which are stocks of companies that pay a usual rate of return of 2% to 5% quarterly.
5. Invest in real estate
It’s true that with $20,000 you can’t buy a house, if you can make a down payment, but you can invest in real estate in other ways. A real estate investment trust (REIT) is a kind of investment in the stock market of companies specialized in the real estate sector, just as you would do with stocks.