Everyone has a different definition of financial comfort, but let’s just say there’s not a whole lot uncomfortable about $50,000 landing in your lap — except, maybe, the weight of all that paper. Deciding how to invest that amount of cash can get pretty heavy, too, especially if you — like most people — aren’t used to a flood of money all at once.
Don't let indecision weigh you down. Instead, we suggest a measured approach. First, make sure you know whether this money will be taxed — the IRS could quickly turn that $50,000 into a still-exciting-but-slimmer $35,000. Then check two crucial financial boxes: having an emergency fund and not having high-interest debt.
What's the best way to invest $50,000?
That depends on you and your goals. Consider the following five suggestions a buffet — take a little of each or load up on the ones you like.
» Want help investing? Jump off here to see our picks for the best robo-advisors.
1. Start investing in the market — now
The most important lesson of investing 101: Time matters — specifically, time in the market. There’s an opportunity cost to keeping your money in cash because even days and weeks of investment growth matter.
While you may be tempted to dribble this money in bit by bit, the best strategy is to go whole hog into the market — that's according to Vanguard, one of the world’s largest investment companies. Jumping in will typically outperform dollar-cost averaging, a fancy term for that dribble strategy of investing a set amount at regular intervals in an attempt to smooth out the market’s highs and lows.
Ok, so we've convinced you that time is of the essence. Don't forsake the necessary legwork to figure out the stock-trading strategy that's best for you — and remember, you don't need to invest the entire $50,000 in the market yourself. Once you've developed your plan, you'll need to open a brokerage account to get access to various types of assets (like stocks, mutual funds, exchange-traded funds and bonds).
» New to investing? See our choices for the best online stock brokers for beginners.
2. Check out a robo-advisor
If the prospect of selecting investments is daunting, you may want someone — or something — to dive deep into your financial life. These days, you can get a financial advisor for much less than you would’ve paid five or 10 years ago, thanks to services such as Wealthfront and Betterment, among NerdWallet's picks for the best robo-advisors. Your $50,000 more than meets the minimum balance requirement for both.
These companies have computer algorithms doing much of the portfolio management dirty work, but on the front lines are human advisors who can walk you through the recommendations made by those computers and make adjustments based on your feedback. (Not sure whether you want a robo or human? Learn more about how to choose a financial advisor.)
The rise of robo-advisors has opened up a range of low-cost options for investors of all types. Computers make the services cheaper than a direct relationship with a financial advisor, but the human element is still very much there — if that's what you seek. For example, at Vanguard Personal Advisor Services, you’ll pay 0.30% of your account balance and work with a team of advisors. At Facet Wealth, you'll pay a flat annual fee starting at $600 and receive a dedicated certified financial planner. » Check out our picks for the best robo-advisors across a variety of categories.
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3. Max out retirement
Do the you of tomorrow a solid: Pad your retirement account.
If your company offers a 401(k) that matches employee contributions, and you haven’t been contributing enough to earn that match, let this cash influx free up your budget so you can do so. Unfortunately, you can’t dump this money in there in one shot, despite the advice above. A 401(k) has an annual contribution limit of $19,500 for 2021 ($26,000 for those age 50 or older) and is funded via deferrals from your paycheck; most don’t accept lump sum contributions.
The other option, if you don’t have a 401(k) or you’re already fully funding one, is an individual retirement account such as a Roth or traditional IRA. These, too, have annual contribution limits — $6,000 in 2021 ($7,000 if age 50 or older). Is it worth putting away that kind of chump change now that you’re such a baller? This Roth IRA calculator, which does the math to project the value of your contributions down the line, will tell you that the answer is “yes.”
» Need more information? Read about IRAs vs. 401(k)s.
4. Diversify your investments
Plenty of things get easier when you have more money, and diversification is one of them.
With $50,000, you can really get your diversification game on — did we make that sound fun? — and look at all the things a good asset allocation plan considers: taxes, investment goals, time horizon and risk tolerance.
“For retirement, you'll probably still put most of your portfolio into an S&P 500 index fund. But you'll also have money left to spread around.”
We've dedicated an entire post to the various ways to invest in stocks. Many people end up choosing a fund with built-in asset allocation, such as a target-date fund, or a Standard & Poor’s 500 index fund, which holds some of the largest companies in the U.S. If the goal is retirement, you’ll probably still put most of your portfolio in an S&P 500 index fund. Those big companies are big for a reason, and their continued growth and stability is a good anchor. Check out our list of the best brokers for mutual funds if you'd prefer this route.
» Want instant diversification? Understand how index funds work
But you’ll also have money left to spread around to funds that hold small and medium-size companies, and to international and emerging markets. For nearer-term goals, or to balance out risk, you can select bond funds. Finally, now may be a time to try your hand at investing in specific companies. Intrigued? Learn more about how to buy individual stocks.
Because the cash you have is more than 401(k) and IRA contribution limits, you’ll want to open that brokerage account we mentioned earlier so you can invest the rest. (Here's more on how to open a brokerage account.)
You should look at all your long-term money as one larger portfolio, regardless of how many accounts you have. For example, you can fill gaps in a subpar 401(k) investment selection with the investments you choose in your IRA or taxable account.
You also want to optimize for tax efficiency. Because a taxable brokerage account is, well, taxable, it makes sense to hold investments that carry a low tax burden — like stock index funds and municipal bond funds — in that account. Investments that are taxed as ordinary income or that generate capital gains, like corporate bond funds and mutual funds with high stock churn, should go in a tax-deferred account like a traditional IRA or 401(k).
5. Invest for more than retirement
As far as financial goals go, retirement hogs all the attention. But a windfall can feel like permission to consider secondary goals, such as a house down payment or college for your kids.
A house is not an investment, but it is an asset. Assuming your home holds value, your monthly mortgage payments build up a pot of equity you can tap one day. But first you’ll need a down payment, and it can take years to save up the recommended 20% down to avoid private mortgage insurance, which can add $100 or more to your monthly payment, depending on your home value. This extra cash can go a long way toward speeding up that process.
As for a college fund, the IRS allows you to front-load 529 plan contributions, which are subject to the annual gift tax exclusion. You can put in five years’ worth of contributions at one time — that’s $70,000; or $140,000 for a married couple — without paying a gift tax.