How to Invest $50,000

Settle on your goals for the $50,000, then understand how to pick the right accounts and diversify your investments.

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If you're able to invest $50,000 there are several options available to you. But there are some important things such as taxes to keep in mind — the IRS could quickly turn that $50,000 into a still-exciting-but-slimmer $35,000.

What's the best way to invest $50,000?

That depends on you and your goals. Consider the following five suggestions as a buffet — take a little of each or load up on the ones you like.

1. Invest in diverse assets

Plenty of things get easier when you have more money, and diversification is one of them. With $50,000, you can easily add some diversification to your portfolio.

One of the easiest investment vehicles to explore is an index fund. These funds allow you to invest in many companies all at once and are less risky than investing in a single stock. A Standard & Poor’s 500 index fund, for example, holds some of the largest companies in the U.S. Those big companies are big for a reason, and their continued growth and stability is a good anchor.

You can also explore funds that hold small and medium-size companies, and those that hold assets from international and emerging markets. For nearer-term goals, or to balance out risk, you can explore bond funds.

If you want to invest in specific companies you can research individual stocks.

» Explore the best-performing stocks

Nerdy tip: There’s no right or wrong asset allocation, but you do want to settle on the best investment mix for your needs — and by “needs,” we mean your ability to stomach risk, your investment goals and your time horizon.

2. Max out your retirement accounts

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. If you have been contributing, consider upping your existing contribution.

A 401(k) has an annual contribution limit of $20,500 in 2022 ($27,000 for those age 50 or older).

Traditional and Roth IRAs are other tax-advantaged ways of saving for retirement. If you don't have an IRA, you can consider opening one. If you already have an IRA, consider upping your contribution if you're not already maxing it out. These, too, have annual contribution limits — $6,000 in 2022 ($7,000 if age 50 or older).

Use our Roth IRA calculator to figure out just how much those contributions can add up.

» Explore the best IRA accounts

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3. Optimize for tax implications

If you're adding new investments to your portfolio, it's worth looking at them in terms of their tax efficiency. Because a taxable brokerage account is 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 should go in a tax-deferred account like a traditional IRA or 401(k).

When going to sell an investment, it's worth thinking about how long you've held the asset for, as long-term capital gains are taxed at a lower rate than short-term capital gains.

» Learn more about capital gains tax

4. Invest for more than retirement

As far as financial goals go, retirement hogs all the attention. But a windfall can allow you 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. This extra cash can go a long way toward speeding up that process.

As for a college fund, look into 529 college savings plans. The IRS allows you to front-load 529 plan contributions, which are subject to the annual gift tax exclusion.

5. Chat with an advisor

If you're looking for guidance when it comes to investing your money, it may be worth talking with a financial advisor. They can talk you through investing strategy, financial planning and alternative investments such as cryptocurrency.

Financial advisors can also help you with estate planning, stock options and RSUs, trusts and even tax strategies.

Online financial advisors provide similar services to traditional advisors for a fraction of the cost. 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 $1,800 and receive a dedicated certified financial planner. Most traditional advisors charge 1% or more.

It may sound committing, but many financial advisors offer free consultations where you can ask questions and make sure they would be a good fit for you.

» Learn how to choose a financial advisor

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