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How to invest $20,000: Guide with 9 wise ways to invest

Have $20K? Instead of letting that money lose value, it's time to invest it, in yourself or in the stock market. Here's the 9 best ways to invest your money.

If you have or have recently come into $20k to invest — congrats! It’s not easy or common to save (or inherit) that kind of money in a short period of time.

But if you’re not investing that money, you’re actually losing money due to inflation.

Have more than $20,000 to invest? Check out How to invest $100k while minimizing risk.

Here are nine great ways you can invest $20,000, including suggested allocations and other great tips so you’re not losing value on your money by letting it gather dust.

1. Invest with a robo-advisor

Investing your $20,000 with a robo-advisor is a great option, as you’ll immediately get to dip your toes into the stock market in a broadly diversified way.

The best robo-advisors are like a financial advisor, but instead of a person picking out expensive investments for you, a company like Wealthfront customizes and manages your portfolio with their algorithms based on your risk comfort level and other investment goals.

You can choose a regular, taxable investment account or set up an IRA. You may want to start by setting up and maxing out either a Roth or traditional IRA, and then use the rest for a taxable investment account.

In 2024 you can contribute up to $7,000 per year to an IRA, unless you’re older and meet catch-up qualifications.

2. Invest with a brokerage account

While many folks prefer hands-off investing with robo-advisors, there are plenty who like to invest on their own. Brokers can help you do that. Before commission-free online brokerages came onto the scene, folks used to pay hefty fees to a broker who would make trades on their behalf. That has quickly become a thing of the past.

For a fraction of the cost, online brokers can help you educate yourself about the stock market and invest your money quickly and easily. If you do go this route, you can also consider services, like The Motley Fool Stock Advisor, that provide expert stock recommendations for you to consider.

3. Do a 401(k) swap

If you’re employed and have $20,000 to invest, one option is to effectively “swap” the money into your 401(k).

Since that money typically comes from your paycheck or bonus, you can increase the contribution amount significantly (usually up to 75% of your salary) until you have contributed $20,000 — using the cash you have on hand to replace the lost income.

Say you make $40,000 per year and you’re putting 5% into your 401(k) right now. Not including any employer match, that’s about $2,000 per year. Now let’s say you come into $20,000 that you want to invest.

You could stash that $20,000 in a liquid, high-yield savings account, and then increase your 401(k) contribution, so it wouldn’t feel like you were living off any less. (Though I’d still challenge you to do so.)

So instead of a 5% contribution, change it to 50% — yes 50%. After a year, you’ll not only have invested $20,000 in a 401(k) but there’s another huge benefit: you’ve just reduced your taxable income by 50%. When you contribute to your 401(k) you aren’t taxed on those contributions. You are only taxed on what remains in your paycheck.

This means that, in the government’s eyes, you’ve only made $20,000 in one year, not $40,000. You’ll pay fewer taxes in most cases, so it’s a win-win.

4. Invest in real estate

It will probably take more than a $20,000 investment to get started with a single family rental property but that doesn’t mean you can’t get started in real estate if you want to.  There are companies out there where you can pool your money with other investors and make large investments as a group.

Until recently, you had to be an accredited investor to invest in these types of projects (or have a ton of money to put in.) But now there’s a real estate investment site called Fundrise that creates loans for people or groups who are buying commercial real estate.

Think big projects, like apartment buildings and office buildings. They then bundle these loans together and make it an investment, called an eREIT. They then sell shares of the eREIT to you as an investor, directly through their site.

In other words, they make it incredibly simple for you to invest in big real estate projects.

Now those of you that have read my thoughts on investing over the years know I hate correlating past performance to future returns, but it’s worth noting that Fundrise has historical annual returns between 8.7% and 12.4%. 

That’s hard to ignore.

Fundrise requires a minimum investment of $10 — which is super cheap — and is one of the top real estate investment apps that doesn’t require sinking all of your money into property or expensive REITs.

5. Put the money in a savings account

If you don’t have an emergency fund then you should definitely put some money in a savings account. Traditional advice is to have six months of expenses saved in an emergency fund.

Once you have that amount set aside then look into investments with higher returns.

6. Look into peer-to-peer lending

Peer-to-peer lending is a way of loaning money to someone else who needs it. This could be for anything: a business idea, student loans, or just paying down credit card debt.

The benefit to peer-to-peer lending (or P2P lending) is that your returns can be much higher than if you were to invest in stocks or bonds. The risk, however, is much greater, as many people won’t pay the loan back on time or won’t pay it back at all.

If you’re going to look into this as an option for investing part of your $20,000, be sure to do as much research on peer-to-peer loans as you can.

Check out our review of Prosper. It’s one of our favorite options. Before diving into P2P lending, make sure to do your research, because the risk is considerable.

7. Pay for an education

My dad once told me that the only thing someone can never take away from you is your education. It has stuck with me to this day because it’s true.

You can lose all your money in the stock market. Your business can fail. But if you have a strong education and a degree, that’ll never go away. Warren Buffett agrees, repeating a similar opinion just recently in 2009 and again in 2022.

“Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you,” he said. “The best investment by far is anything that develops yourself, and it’s not taxed at all.”

If you don’t have a college degree, consider getting one in something you really enjoy, but that is also marketable. If you already have a college degree, consider getting an advanced degree, such as a master’s or a Ph.D.

Low-cost (and even free) education options

If you’re not looking to invest your $20,000 in formal education, you can invest some of it (or even none of it) to upskill yourself and use the rest for something else on this list. 

  • Udemy is a marketplace of thousands of online courses. They almost always have a sale, and you can frequently get really good classes for under $15. You can search by topic, then by popularity to see which ones are selling. You can also preview the course syllabus before you buy so you know exactly what to expect.
  • Coursera is an excellent option if you’re looking for more formal or business skills. For example, if you want to learn business operations, you can do a Coursera course. All courses are partnered with a major university or company, and they’re all self-paced.
  • Khan Academy has a cool backstory — Salman Khan was a lawyer (among other things) and decided he wanted to create videos to help people learn somewhat complex topics, such as personal finance. That eventually grew into a full-scale nonprofit organization that now partners with Bank of America. They have all kinds of topics, including topics for kids, and most of the content is step-by-step explainer videos.

8. Pay off debt

One of the best returns on your money is paying off high-interest debt.

Yes, believe it or not, one of the best investments you can make is paying off your debt, most notably your credit card debt fast. If you don’t have credit cards, pay off any other kind of debt you have.

Think about it this way: the money you’ll end up saving on interest by having no debt is going to far exceed any return you’ll find in the investment market today. That includes real estate, stocks, fine art, or anything else.

The math on this is simple, too. Say you have a credit card with a 15% interest rate. If you pay that card off, you’re effectively earning 15%. And that’s a quick return that doesn’t come with any research or speculation, as there may be with stocks or real estate.

And it might even be worse than that. Say you have a personal loan at 25% (yes, this can happen). If you only pay the minimum payment on that each month, it’ll end up costing you a massive amount of money. Money you could have otherwise re-invested. 

If you’re deep in debt and have money to invest, now is the time to cut up your credit cards, stop using them, and focus on paying your debt down. And that $20k will certainly make a dent. 

The bottom line

Remember that diversification is key, especially with this kind of money. I’d suggest you don’t put all your eggs in one basket unless you really know what you’re doing.

The exception to this is the value of investing with a robo-advisor. I would feel completely comfortable investing $20k with a robo-advisor, knowing that my money is going to be well-diversified and adjusted to my goals and tolerance. Just make sure you mix up the type of accounts you have (i.e., retirement versus regular investment accounts.)

Regardless of what you do, the most important thing is to not let that money just sit around in your checking account, as you’ll lose a world of opportunity. Get on it today.

About the author

Chris Muller

Chris Muller

Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016.

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