For most people, $50,000 is a meaningful amount of money, especially when it comes to investing for retirement. At the same time, knowing how to invest prudently puts you in a position to both maximize your financial capital and sustain a desirable lifestyle later in life.
Here, I'll outline how I'd invest $50,000 if I were to start from scratch today.
A few key assumptions
It's impossible to outline how I'd invest the money without making a few key assumptions. Let's take the following factors as given:
- I already have an adequate emergency fund. Before investing aggressively, it's vital to establish a liquid emergency fund, typically enough to cover three to six months of living expenses. In reality, I'd keep closer to a year's worth, but some people are comfortable with less.
- I am at least 20 years from retirement. Investing for pre-retirees and retirees looks very different from investing for people who still have years in the workforce. For this exercise, we'll assume I'm either early or mid-career and want to invest for the long term.
- I have no other retirement money at the moment. Again, it's impossible to make a judgment on retirement investing if we look at any one account in isolation. To make a more informed decision, let's pretend this lump sum is the only money I have at my disposal.
- I'll use a sample asset allocation of 90% stocks and 10% bonds. In the end, this means I'll end up with $45,000 worth of stocks and $5,000 worth of bonds. Given rising interest rates and unusually high inflation, an asset allocation overweight in bonds is hard to argue for, especially over the long run.
Step 1: Fully fund a Roth IRA
If I can fully fund a Roth IRA up to the IRS-defined limit ($6,000 in 2022 or $7,000 if you're over 50), that's my first stop. I'd immediately deposit the full contribution amount of $6,000 and invest in a simple, low-cost index fund that covers the broad market like the Vanguard Total Stock Market Index Fund.
Other than setting all capital gains and dividends to reinvest, I'd then direct my attention to my employer-based account.
Step 2: Max out my retirement plan at work
Whether it's a 401(k), 403(b), or even a solo 401(k), making the most of your workplace retirement plan is a great next step. Since you're able to contribute more to a workplace plan in 2022 ($20,500 for 2022 or $27,000 if you're over 50), I'd ensure the full contribution takes place. Contributing this much also ensures you'll be eligible for a matching contribution (if offered), which just ends up as more retirement money.
For a long-term investor, this means contributing $20,500 to your 401(k). Of that money, I'd invest $5,000 into a broad-based bond market mutual fund (in keeping with our asset allocation) like the Vanguard Total Bond Market Index Fund.
Then I'd invest the remaining $15,500 in the Vanguard Total Stock Market Index Fund. Keeping things diversified, low-cost, and as simple as I can possibly make them is the overriding factor in creating a new investment plan.
Image source: Getty Images.
Step 3: Open a taxable brokerage account
Since I've already used $26,500 of my available money, I'd still have $23,500 to allocate to a taxable brokerage account. Since I'd like to add international stocks to my portfolio, I'll use $15,000 of my remaining money (one-third of my stock allocation) to buy another low-cost exchange-traded fund (ETF). One that comes to mind is the Vanguard All-World ex-US ETF, which gives me global exposure to a ton of international stocks and provides further portfolio diversification.
With the remaining $8,500, I'd invest in the Vanguard Total Stock Market ETF and call it a day from there. Note that this is the ETF version of the mutual fund mentioned earlier, so it's essentially the same product.
Taking a bird's eye view
When all is said and done, I'd have $5,000 in a total bond fund, $15,000 in a total international fund, and $30,000 in total stock funds. What's more, I'd also have the money spread out across accounts in a tax-optimized fashion, so I'd know every single dollar was working to its maximum capability.
An important takeaway here is that you should consider making things extremely simple and easy to manage, so you don't spend precious time tinkering or changing things around. This is valuable time you could use to do any number of other things. Setting your retirement allocation on autopilot while only revisiting it to rebalance or add funds is a smart way to handle your investments, so think carefully about how you set them up from the get-go.
Sam Swenson, CFA, CPA has positions in Vanguard Bond Index Funds - Vanguard Total Bond Market ETF, Vanguard FTSE All-World ex-US ETF, Vanguard Total Stock Market ETF, and Vanguard Total Stock Market Index Fd Admiral Shs. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
FAQs
How to invest $50K: 10 proven strategies
- Max out your retirement accounts. ...
- Contribute to a health savings account (HSA) ...
- Fund a 529 college savings account. ...
- Stash it in a high-yield savings account or CD. ...
- Invest in Treasurys. ...
- Invest in an index fund. ...
- Invest with a robo-advisor. ...
- Invest with a brokerage account.
What is the rule of 72 Motley Fool? ›
Let's say that you start with the time frame in mind, hoping an investment will double in value over the next 10 years. Applying the Rule of 72, you simply divide 72 by 10. This says the investment will need to go up 7.2% annually to double in 10 years. You could also start with your expected rate of return in mind.
How to turn your $50 K salary into a $1 m retirement fund? ›
“If you are age 30 today and invest $600 a month from now to age 65, if your investments earn an average return of 7% a year, by age 65 you'll have $1 million,” said Dana Anspach, founder and CEO of financial planning firm Sensible Money.
How much is 5% interest on $50,000? ›
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year.
Where is the best place to put $50,000? ›
With $50,000, you could potentially max out your 401(k), IRA and Health Savings Account (HSA). For many people, this amount of money is enough to top off contributions. Review the assets available in tax-advantaged investment accounts, since you might be limited to certain funds or face other restrictions.
What is Rule 69 in investment? ›
What is the Rule of 69? The Rule of 69 is used to estimate the amount of time it will take for an investment to double, assuming continuously compounded interest. The calculation is to divide 69 by the rate of return for an investment and then add 0.35 to the result.
How long does it take to double your money at 10% interest? ›
How the Rule of 72 Works. For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72 ÷ 10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.107.3 = 2).
What is the 80% rule investing? ›
In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.
Is $50,000 good for retirement? ›
So for a $50,000 nest egg, that would mean $2,000 of retirement income a year. Even with a decent chunk of cash from Social Security, that may not be enough to live on. But if you're willing to work part-time in retirement, you may find that you can get by quite well thanks to that added income.
How many Americans have $10,000 saved? ›
Majority of Americans Have Less Than $1K in Their Savings Now
How Much Do Americans Have in Their Savings Accounts? | | |
---|
$1,001-$2,000 | 10.60% | 9.81% |
$2,001-$5,000 | 10.60% | 10.64% |
$5,001-$10,000 | 9.20% | 9.51% |
$10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
How to invest $50,000 dollars for quick return? ›
If you have $50,000 to invest, there are plenty of good options. You can choose safe investments, like CDs or high-yield savings accounts. Alternatively, you can invest in things like stocks and real estate in the hopes of achieving superior long-term returns.
How can I double 50k fast? ›
Here's the quick rundown:
- Invest in real estate with Arrived.
- Invest in the stock market with Acorns.
- Invest in commercial real estate with RealtyMogul.
- Invest in real estate debt with Groundfloor.
How to turn 100k into 1 million? ›
There are two approaches you could take. The first is increasing the amount you invest monthly. Bumping up your monthly contributions to $200 would put you over the $1 million mark. The other option would be to try to exceed a 7% annual return with your investments.
Can you retire with 50K in savings? ›
So for a $50,000 nest egg, that would mean $2,000 of retirement income a year. Even with a decent chunk of cash from Social Security, that may not be enough to live on. But if you're willing to work part-time in retirement, you may find that you can get by quite well thanks to that added income.
How much can I make investing 50K? ›
As a general guideline, every 1% yield in a savings account or CD will result in $500 in interest per year if you start with $50,000. So, if you invest $50,000 in a high-yield savings account with a 4% annual percentage yield (APY), you can expect to earn $2,000 annually, assuming the APY remains the same.
What is the $1000 a month rule for retirement? ›
The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).