Tax Day is right around the corner – this year, it falls on April 18.
Are you getting a refund? If so, what will you do with it? There are plenty of ways to splurge that “bonus” money from the IRS, but what about turning it into an investment opportunity?
It doesn’t take as much as you may think to make a healthy investment. Consider the relatively small sum of $10,000. Granted, your refund check probably won’t reach this level, but kick in a little savings to make up the difference, and you have a nice chunk of change to invest.
Of the many options available to grow your cash, we’ve slimmed things down to five of the best ways to invest $10,000. And feel free to mix and match. There’s no rule that says you have to throw all your money into one basket.
1. Invest in Commission-Free and Low-Cost Funds – If you’re the DIY type, try investing in ETFs and low-cost mutual funds. With your $10,000, you can piece together a diversified portfolio of funds yourself.
ETFs are a kind of index fund, and trade like a stock. You purchase them for a share price (that’s the minimum investment), which could be as low as $50. Index funds, on the other hand, are a type of mutual fund. Typically, there’s an investment minimum, but $10,000 will be more than enough to get you started.
2. Dip into the Stock Market – Whether headfirst or a toe at a time, you can turn your DIY investing up a notch by investing in stocks on your own. So go for it, with one caveat: for long-term goals like retirement, it’s better to stick to the other options in this list and limit stock trading in your portfolio. Remember too that ETFs and index funds are baskets full of stocks or bonds, depending on the type of fund you’ve selected. When you use these investment vehicles, you get exposure to stocks without having to cherry-pick individual stocks.
3. Talk to a Robo-Adviser – These firms use computer algorithms that manage your cash and keep your fees low. A $10,000 investment is solid enough to open an account at many of these companies. Robo-advisors typically use exchange-traded funds (ETFs) and index funds. These low-cost investments are relatively passive and track sections of the market, like the S&P 500.
Consider using Wela. The Atlanta-based company’s online investment services include automatic rebalancing, online and real-time access to your financial advisor, and assistance with estate planning, tax planning and insurance planning. An added bonus? There are no minimums and no fees up to your first $10,000 invested with Wela. (Full disclosure: I’m a partner in Wela.)
4. Meet Your 401(k) Match – A guaranteed investment return may be as rare as free money, but a 401(k) match gives you both. Think about it. When you contribute to the account, your employer makes a contribution, too. So, if you’re not already meeting the match, the $10,000 you’ve set aside may put you in maximum match position.
The hitch? Typically, you can’t make a lump-sum deposit to a 401(k), so you’ll have to get a little creative. Try putting the $10,000 into a savings account, then max out your 401(k) contribution to the employer match level. When your contribution is swiped from your paycheck, replenish your checking account with the money in savings.
5. Max Out an IRA – An IRA is your own personal version of a 401(k), except there’s no one to match. But there are many other benefits to the investing vehicle. So if you don’t have a 401(k) at work, an IRA is the next best thing.
Your $10,000 investment nest egg is more than enough to max out an IRA for the year. Currently, the annual contribution limit is $5,500 (with an extra $1,000 added on for those 50 or older). Max your IRA out and then choose another option from this list for the rest of your money.