What would you do if you suddenly had $10,000 in cash at your disposal? Would you splurge for a trip to some far-flung corner of the world? Trade up for a nicer vehicle? Buy new furniture and a hot tub for your backyard deck?
Those ideas might be the first that come to mind, but they may not be ones you will feel proud of ten or twenty years from now. Unless you have high interest debt you could pay off, your best bet with any “found money” is always going to be investing it for the long haul.
Why? Because when you invest cash instead of spending on depreciating assets, you set yourself up to have more financial freedom and better outcomes later on.
5 Smart Ways to Invest 10K
But, how should you invest $10,000? While there are plenty of smart ways to invest your money, the right option for you depends on your appetite for risk, your investing strategy, and your long-term goals. Of course, your best option might also depend on your unique needs and what you require to move to the next stages of your business or your personal development.
If you have found money this year, here are five ways to invest that could truly pay off down the line:
Online Real Estate Investing
Investing in real estate is all the rage these days, but that doesn’t mean everyone wants to be a landlord. The mere thought of dealing with tenants or painting interiors is enough to send some running for the hills, let alone the concept of having to deal with late night calls or costly repairs.
That’s why investing in Fundrise is such a smart idea. Fundrise.com is an investing platform that lets you invest in private real estate assets without dealing with the minutiae that comes with owning traditional rental real estate.
You only need a $500 minimum to get started with Fundrise, which makes it an ideal option if you have $10,000 to play with. Once you open an account, you can invest in major metro markets like Los Angeles, Washington D.C., and Jacksonville, Florida. Not only do they offer plans that support supplemental income, but they offer plans good for balanced investing and long-term growth.
Real estate crowdfunding makes it possible to invest in real estate without ever stepping foot in a property and without borrowing hundreds of thousands of dollars. These reasons and others are why online firms like Fundrise are so popular, and why they could continue growing in the future.
Peer-to-peer lenders like Lending Club are another smart platform to consider whether you have a few hundred dollars to invest, $10,000, or a whole lot more. Lending Club is a peer-to-peer lending platform that lets you – the investor – earn interest on loans instead of traditional banks.
As an investor in Lending Club, you can spread your investment across hundreds or even thousands of loans in increments as low as $25. Lending Club has offered a historical return of 4-6% per year after accounting for defaults, although you can score a higher rate of return if you make riskier loans.
You only need $1,000 to get started as an investor with Lending Club, and you can automate your investments based on a pre-selected strategy or manually select loans that meet your criteria.
Investing in Lending Club is easy, and you can even use the platform for a traditional or Roth IRA or a 401(k) rollover.
Prosper is another peer-to-peer lender that work similarly. With Prosper, you can invest your cash into loans taken out by individuals and earn a healthy rate of return. Prosper says their investors have earned an average return of 6.59% thus far, making them a top contender in the peer-to-peer lending space.
Health Savings Account (HSA)
A Health Savings Account (HSA) offers yet another way to carefully park $10,000 in investable cash. This type of account is available to individuals and families with high deductible health plans, offering a wide range of tax benefits for today and the future.
For starters, the money you contribute to a Health Savings Account (HSA) is deductible on your federal taxes. Your investment then sits in your account and grows tax-free until you are ready to withdraw it to cover a qualified healthcare expense. Families can contribute up to $7,000 in 2019, while individuals with a high deductible plan can save up to $3,500. Those ages 50 and older can save an additional $1,000 each year.
The best part is, the money you save in an HSA (plus interest) can be withdrawn for any reason without penalty once you hit age 65. That means you can use these funds for retirement or anything else at that point, although you may still want to save your HSA money for healthcare expenses.
The bottom line: Money saved in an HSA has a triple tax advantage! You can deduct your contributions on your taxes, your money grows tax-free, and you can withdraw the money tax-free later on. It doesn’t get any better than that.
When it comes to Roth IRAs, you should have one if you qualify and haven’t opened one already. Roth IRAs offer a great tax advantage later on, and you can contribute up to $6,000 per year (or $7,000 per year if you’re ages 50 and older).
With a Roth IRA, you invest post-tax dollars today and let that money grow tax-free until you’re ready for retirement. The best part is, since you already paid income taxes on your contributions, the money you withdraw in retirement will be completely tax-free.
There are income limits for Roth IRAs, however, so make sure you can contribute before you open an account. As of 2019, phase-outs start at $193,000 for couples and $122,000 for singles. Couples and singles who earn over $203,000 and $137,000 respectively can’t invest directly into a Roth IRA.
Coaching or Mentorship
While investing in coaching or some sort of mentorship may not be as traditional as other options on this list, this type of investment can be well worth it. The money you spend to get guidance or improve your accountability in a group of like-minded individuals can pay off in spades, both financially and emotionally.
How do I know? I have invested in several different coaching and mentorship programs over the years, including a program that cost $25,000! While that’s a lot of money, there’s no way I could get a better return than I did by investing in myself and my own personal development. I learned so much from the groups I took part in, and those lessons translated into a lot more than $25,000 in returns later on.
One of my colleagues, financial advisor Matthew Jackson of Solid Wealth Advisors, told me he believes investing in personal growth is one of the best little known ways to ensure a positive return. Why? Because Jackson has seen firsthand how a professional coach or mentor can help people build skills they can use to make more money and improve their lives.
“Unlike the passing ‘new investment opportunity’ that may have little control of, investing in yourself is a way you can have total control of how you put that investment to work,” says Jackson.
The Bottom Line
If you somehow wind up with extra money this year, don’t forget all the different strategies you could use to grow that money over time. Investing $10,000 today would leave you with $32,071 if you earned 6 percent and left the money alone for twenty years. Let it sit for thirty years and you’d have $57,434.
You could have even more money if you managed a higher rate of return, but it’s not chump change either way. Once you learn to let your money work for you, and the possibilities are endless.