Making investments and growing wealth sounds like a no-brainer for most people. Most workers with a decent tenure have some savings in their name, be it for retirement or other purposes. Investing these funds can be incredibly easy and accessible through numerous online brokers and personal finance/wealth management platforms. However, there are a number of important questions that need to be answered before taking the next step and actually putting your hard-earned capital into an investment.
Investment strategies range from ultra-safe to highly speculative, and investors should be aware of the risks associated with investing and how to manage them. The first step in successful investing is to identify your objectives and the purpose of your investment. Are you saving up for a house? A car? Retirement? These are all very common objectives to have in the modern world and each will require a different approach. What assets should you invest in and what are the risks associated with each one? Choosing specific investments can be a problem of abundance and not of scarcity, as there are just too many options available, and analyzing each of them can be a time-consuming process.
If you have something to the tune of $50,000 in savings and are wondering where the best place to invest these funds may be - this investfox guide is for you.
Why Should You Invest At All?
This is a valid question as the financial world can be complex and risky and nobody wants to invest their savings into something that will go bust within a few years. To avoid such mishaps, prospective investors need to consider the key purpose of investing in the first place.
Deploying your spare capital into assets, such as stocks, bonds, crypto, real estate, etc. is done on the assumption that either the value of the underlying asset will increase in the future, or that the investment will generate a steady stream of cash flows while keeping the principal amount secure.
This creates a distinction between investors who choose assets that have the potential for growth, such as stocks, ETFs, and crypto, and investors who pick cash-producing assets, such as real estate, bonds, farmland, etc.
This can serve as a stepping stone for your decisions in allocating capital. We will consider the various options for growth and cash-producing assets below.
"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this." — Dave Ramsey
Growth Assets and How To Pick Them
Assets that are traded on an exchange and change in market value in accordance with supply and demand are good examples of growth assets. Investments such as stocks, exchange-traded funds (ETFs), cryptocurrencies, flipping real estate, commodities, etc. can all be viable options for value growth in the long run. However, they come with their unique sets of advantages and disadvantages and can have wildly different entry prices.
Setting your upper limit at $50K will help you choose what to consider and what to avoid entirely.
Stocks
Stocks are one of the most popular methods of investing your savings. Stocks are shares of real companies that are listed and tradable on a stock exchange. You can find stocks of different backgrounds and there are thousands of them available for trading on the New York Stock Exchange and the Nasdaq.
In our case, stocks can serve a dual purpose. While most stocks may have significant upside potential, at least in theory, there is still a selection of stocks that are more focused on dividend payouts, rather than growth in value. These are typically very mature businesses with predictable financial performance.
When picking a stock, consider the following points:
What is the profile of the company? (What industries/markets does it serve?)
When did the stock have its initial public offering (IPO)? Is enough performance data available?
How has the stock performed up to this point?
Is the company in good financial health? (You can check their quarterly reports on the Investor Relations page of the company website)
How much does a single stock cost? How many can you buy for $50K?
Is it a particularly volatile stock? (You can check the Beta value of the stock to measure volatility)
Is the stock heavily overvalued? What is its Price/Earnings ratio?
Answering each of these questions can give you a rough picture of what to expect from a stock and how much capital you should allocate to a particular stock.
The 2022 bear market has been tough on stocks and many shares trade at a significant discount, which can open up great opportunities throughout 2023.
For investors saving up for a specific purpose, it is best to diversify your $50K among 5-10 stocks from different industries, as they carry different risk profiles. Investors who simply wish to try their hand at stock investing can choose up to 5 stocks that are trading at a discount and hold them in their portfolio for the long term.
"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." — Paul Samuelson
ETFs
ETFs, or exchange-traded funds, are funds that are composed of different asset classes and are traded on an exchange, like stocks. ETFs can range greatly in asset composition and investors can pick and choose from ETFs that are invested in stocks, bonds, cryptocurrencies, or even other ETFs.
ETFs are generally a lower-risk investment, as they are diversified across multiple assets. However, ETFs that are composed of only equities can be more volatile than those with fixed-income securities.
More risk-tolerant investors can choose ETFs that are invested in disruptive tech stocks and hold them for the long term, as these assets have a significantly higher upside than most other stocks.
Cryptocurrencies
2022 has been a difficult year for the world of crypto. With major players going under, the uncertainty over the future of cryptocurrencies reached an all-time high.
This has reignited the debate over Bitcoin being the sole legitimate investment comparable to commodities, such as gold and silver.
Investing in crypto has always been the trade of more risk-tolerant investors and allocating a portion of the $50K portfolio to crypto, namely BTC, could prove to be a highly rewarding decision. However, we must consider the market expectations going into 2023. While Bitcoin has been slashed in value over the course of the year, some analysts expect further declines in 2023, so investors should keep an eye out for even more favorable prices in 2023. By some estimates, Bitcoin may be poised to dip to as low as $10,000 in 2023, which is seen as a great opportunity by many investors.
Commodities
Investors can place their funds in a variety of commodities, such as gold, silver, platinum, crude oil, corn, copper, etc. They can do so by purchasing futures contracts, which have a predefined lifespan and are tied to the price of the underlying commodity. While an interesting alternative, commodities are geared more towards short-term trading, rather than long-term investing.
Fixed-Income Assets
Fixed-income investments generate a steady stream of cash flows over a specified period of time. The most common fixed-income assets include Treasury bills, notes, bonds, as well as corporate bonds, and certificates of deposit (CDs). Such assets are typically bought to hold over the duration of the contract and are measured in yields. While fixed-income securities can be sold to third parties, investors typically hold them till expiry. Much of the performance of such assets depends on the official interest rates in the issuing country.
The high inflation figures of 2022 have prompted central banks around the world, including the Federal Reserve of the United States, to increase interest rates, which has made fixed-income securities a more attractive investment option than before.
Real estate is also a common investment made for the purpose of a steady rental income, however, $50,000 is not the ideal amount for buying real estate in most countries and would require the full investment into a single asset, which may prove costly.
Bonds & CDs
Bonds and CDs are some of the most popular fixed-income investments on the market. Bonds range from Treasury and municipal to corporate bonds. There can be a significant difference between bonds, based on the issuer and their background. For example, bonds issued by a distressed company, or a country in a dire economic condition, would have higher rates to attract prospective investors and present themselves as attractive investments.
Investing in bonds, especially corporate bonds of well-established companies, can be a rewarding experience with a stable, predictable outcome.
If you are interested in steady growth and hedging against inflation, buying bonds with your $50K savings can be a sound investment. You can also divide the funds and invest a portion into bonds, as many bonds are issued with a $1,000 denomination, allowing retail investors to take advantage of the offering as well.
Treasuries
Treasury securities are not very different from corporate bonds. The main difference is that the government is the party issuing Treasury securities, which makes these securities the least-risky asset class available on the market. Governments have periodic issues of internal debt to fund ongoing projects and refinance existing debt, so they use this opportunity to attract capital from individuals and corporations alike.
If you are a particularly risk-averse investor, Treasuries definitely deserve a place in your portfolio.
Real Estate
Buying real estate and renting it out can be a good investment in the long run. However, it does come with some unique challenges that may deter you from taking this step. If you are directly managing a real estate investment, you are the one responsible for dealing with tenants, which can be stressful at times. Furthermore, real estate depreciates, requiring periodic renovations and added maintenance costs, which eat into your profits.
Buying real estate for $50,000 is not a feasible option in most cases and investors can rarely find decent deals in the current market. However, it is certainly not impossible and investors with a keen interest in real estate can take the step of investing $50K in physical real estate.
Dividend-Paying Stocks and REITs
A better alternative open to investors interested in real estate is a real estate investment trust or REIT. REITs function similarly to stocks and represent funds that are invested in real estate, which can range from residential to commercial and office spaces. REITs pay at least 90% of their net earnings as dividends to shareholders, which makes them attractive options for the everyday investor.
Another solid option to consider is a dividend-paying stock. Commonly nicknamed “Dividend Aristocrats”, such stocks have a relatively high dividend yield and are consistently profitable.
Some stocks go as far as accruing debt to pay dividends to shareholders, which might not be the most reassuring option when picking dividend stocks.
Both dividend stocks and REITs increase in value depending on performance, which is an added bonus in the long term.
Wealth Management Services
For investors that do not have the time or knowledge to pick the best options for themselves, wealth management services might be the best choice. Many financial institutions offer wealth management and savings services to clients, where the client deposits their funds and professionals oversee the investment process.
Wealth management services charge management fees and investors should take this into consideration. Many wealth managers also uphold account minimums, which may place them out of reach for someone wanting to invest $50K.
Other savings services and passive investments are also possible and investors can choose a strategy that hedges against inflation and provides a degree of growth on top.
Alternative Investment Options To Consider
The financial markets have been evolving continuously over the past decade, which has led to the emergence of alternative investment platforms. Some interesting options include:
FarmTogether - Farmland investments with annual yields
Vinovest - Investments in fine wine and spirits
Fundrise - Fractional investments in real estate
Yieldstreet - Various alternative investments
StartEngine - Private equity crowdfunding for startups
Prosper - P2P lending
Masterworks - Fractional ownership of artworks
Vaulted - Invest in gold
Collectable - Sports memorabilia (match balls, jerseys, signed souvenirs, etc.)
Fig - Investing in video game development
These are only a handful of such platforms and modern investors can invest in almost anything of value, which makes for a great degree of financial flexibility.
Measuring Your Returns
To accurately measure your potential returns, consider the average returns of each investment you are willing to make. You can use portfolio simulators to determine how to best allocate your $50,000 to make the most of your investments over time.
You can also track the performance of your investments in real-time. Optimizing your investment strategy is important to gain the maximum return on the principal, therefore, frequent reviews may be necessary to keep up with the market and make necessary adjustments in time.
Key Takeaways From Investing $50K In 2023
Investing $50K sounds a lot easier before you consider the sheer number of options available to the modern investor. Options range from stocks, ETFs, commodities, and crypto, to fixed-income assets, such as bonds, T-bills, CDs, and real estate.
The democratization of financial markets has also led to interesting alternative investment platforms, where individuals and legal entities can invest in anything from real estate and farmland to video games and wine. Balancing a $50,000 portfolio requires clearly defined objectives. Chiefly, what the money is for and what the duration of the investment will be are two fundamental factors that can drive investment decisions.
Frequently reviewing your objectives and investments is crucial in keeping up with the ever-changing markets.
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You can invest $50K in stocks, and it might be a good thing, but there are no guarantees. The key to stock investing is to diversify your assets and choose stocks with solid fundamentals and decent upside potential. It is advisable to invest in a basket of 5-10 stocks from different sectors.
Are bonds a good investment at $50K?
Bonds, especially corporate bonds from well-established companies, can be a great way of beating inflation and steadily growing your wealth.
Should I diversify my $50K?
It is generally advisable to diversify your investments, regardless of the size. Diversifying your $50K into fixed-income and growth securities can help reduce overall risk exposure and potential losses.
