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Best Ways to Invest $10,000: A Step-by-Step Guide

November 29, 2016
Investing, Investing Strategy, Investments
The 5 Best Ways to Invest $10,000
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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.
Your definition of windfall may vary, but there’s little argument that $10,000 is a healthy chunk of cash — certainly enough to give you cold feet when deciding how to invest it.

The good news is there are a lot of options: $10,000 is enough to more than meet most online broker minimums.

We’ll help you walk through those options below.

Put your money in the right place

Based on your savings and lifestyle, we'll help you understand where to invest your money — the accounts you need and how to use them — so you can get to where you want to be.

Hands-on or hands-off?

If you’re new to this game, you might not know what your investing style is. So we’ll make it easy for you: Are you really looking for someone or something to invest this money for you?

If so, you might be interested in a robo-advisor. Robo-advisors are computer algorithms that manage your investments in accordance with your goals. You’ll pay an annual management fee of around 0.25% for a robo-advisor to build and manage an investment portfolio for you.

We’ve taken a close look at the leading robo-advisors and compiled our favorites, based on crucial factors like fees, investment portfolios and customer service. Wealthfront, the company that tops that list, manages the first $10,000 you invest free.

If, on the other hand, you want to learn how to invest this money yourself, here are some steps to take:

1. Pinpoint your goal

The endgame is important here, because it — and when you want to reach it — is a key factor in how you should invest this $10,000.

If your goal for this cash is short-term — that long-awaited engagement ring, next year’s summer vacation — you probably don’t want to invest at all. Generally, money you need in five years or less should stay out of the market. Instead, check out our suggestions for how to invest for short-term goals here

If your goal is long-term — retirement being the most common in this bucket — you absolutely want to invest, because that time will give your money a chance to grow.

How to invest money
If you want to make your money grow, you need to invest it. Learn the fundamentals, how best to reach your goals, as well as plans for investing certain sums, from small to large.   Read more »

2. If you have a 401(k), get your match

A guaranteed investment return is as rare as free money, and a 401(k) match gives you both: When you put dollars into the account, your employer puts dollars in, too. How many dollars depends on your plan’s matching arrangement, but 50% to 100% of your contributions up to a limit of 3% to 6% of your salary is a pretty common range.

This $10,000 windfall may give your budget the room it needs to finally start meeting that match, if you’re not already. The hitch: You typically can’t just make a lump-sum deposit to a 401(k), so you have to get a little creative if you want to get this cash into your plan and capture matching dollars while you do it. Put the $10,000 into a savings account, then set your 401(k) contribution to the level your employer matches. When that contribution is swiped out of your paycheck, repay yourself from the money in savings.

3. Max out an IRA

An IRA is like a 401(k) you open on your own, which means no match. But it has other benefits, including a wide investment selection, and if you don’t have a 401(k) at work — or you’re already meeting your 401(k) match — an IRA is far and away the next best thing.

That $10,000 is more than enough to max out an IRA for the year. The annual contribution limit is $5,500 right now (with an extra $1,000 allowed for those 50 or older). You can choose to contribute that to a traditional IRA, which will get you a tax deduction on your contribution. You’ll then pay taxes when you pull the money out in retirement.

If you’re not concerned about that tax deduction, you might choose a Roth IRA. In a Roth IRA, you don’t get a tax deduction on contributions, but distributions in retirement are tax-free. Generally, a Roth IRA is best if you think your tax rate will be higher later than it is now.

NerdWallet rating

Fees

$6.95

per trade

Account minimum

$0

Promotion

$100-$600

in cash bonus with a qualifying deposit

The bottom line

TD Ameritrade’s $0 account minimum, wealth of free research and retirement planning tools, and plentiful lineup of no-transaction-fee mutual funds and commission-free ETFs make it an ideal place to set up an IRA. It’s library of educational resources and free paper trading account are also great features to help investors hone their skills.

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Pros

  • $0 account minimum

  • Large lineup of no-transaction-fee mutual funds

  • Good customer support

Reader favorite

Cons

  • Higher trade commissions

  • High short-term ETF trading fee

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NerdWallet rating

Fees

$6.95

per trade

Account minimum

$0

Promotion

Up to $600

in cash bonus with a qualifying deposit

The bottom line

Retirement investors will find a lot to love with E-Trade’s IRA offering, including a large line-up of no-trading-fee mutual funds and an extensive library of retirement advice and tools. Plus, there’s no minimum account balance.

Show pros & cons

Pros

  • No minimum balance for IRAs

  • Extensive research and tools

  • 156 commission-free ETFs

  • 4,400+ no-transaction-fee (NTF) mutual funds

Reader favorite

Cons

  • $19.99 cost for trading non-NTF mutual funds

  • Higher trading fees for low-volume ETF and stock traders

Read full review
NerdWallet rating

Fees

$4.95

per trade

Account minimum

$0

Promotion

$50

in cash bonus with a qualifying deposit

The bottom line

Ally Invest’s low commissions, no annual fee and no account minimum make it a good choice for IRA investors. For investors who want to be more active, the broker also offers a solid suite of research and tools, but IRA customers may be put off by closure and transfer-out fees.

Show pros & cons

Pros

  • Low commissions

  • No account minimum

  • No IRA annual fee

  • Strong web-based platform

  • Robust research and tools

Reader favorite

Cons

  • IRA closure fee of $25

  • IRA transfer out fee of $50

Read full review

» For more options, view our roundup of the best IRA providers

4. Use a taxable brokerage account

If you’re already on track for retirement — 401(k) is matched, IRA is funded — or you’re investing for a long-term goal that isn’t retirement, you’ll want a taxable brokerage account, which you can open at any online broker. (Here’s how to do it.)

Unlike an IRA or 401(k), there isn’t a tax break here. But a brokerage account allows you to access a wide range of investments, and because there is no specific goal for this account, you can take distributions at any time and contribute as much as you’d like.

» View our picks: the best brokerage accounts

5. Select your investments

The investment account — 401(k), IRA, brokerage — is just a vessel; once you get that $10,000 in there, you need to select investments. You can pretty easily piece together a diversified portfolio of low-cost index funds or exchange-traded funds with $10,000.

Index funds, a type of mutual fund, typically have an investment minimum, but $10,000 is more than enough to buy into several. ETFs are a kind of index fund that trades like a stock. You buy them for a share price — that’s the minimum investment — and it could be as low as $50.

» Want to know more? Here are our detailed guide for how to invest in stocks

Both are baskets full of stocks (or bonds, depending on the type of fund you’ve selected). When you use them, you get exposure to stocks without actually having to pick individual stocks.

But maybe you want to pick stocks. Go for it, with one caveat: We recommend limiting stock trading to 10% of your portfolio or less (and follow these guidelines to survive). If $10,000 takes a bigger bite, maybe you trade stocks with the portion that overflows your IRA contribution limit or set aside just a small chunk of this money to play the market.

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