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Best Way To Invest 20k: 10 Tips

invest 20k

Are you looking to invest $20,000 but unsure where to start? Then, you are in the right place because you will learn how to invest 20k in 10 different ways.

My Finance Master understands that investing can be a great way to grow your wealth and secure your financial future, but it can be overwhelming at the same time. Therefore, financial literacy is needed to ensure you make the best decisions when investing.  

Key takeaways

  • There are so many ways you can invest $20k
  • You can invest in real estate, mutual funds, small businesses, stocks, bonds, retirement savings accounts, high-yield savings accounts, dividend stocks, and certificates of deposits.
  • You can also invest in yourself by taking a marketable course or furthering your education to create more opportunities for you to earn more.
  • You can also use the $20k to pay debt and reduce the amount of money you could have paid as interest. Therefore, you will have improved your financial status.

How do you know the best way to invest 20k?

There are plenty of ways to invest $20,000 that can help you reach your financial goals. However, it is not easy to choose the right way. Therefore, you need to consider several factors when choosing the best investment method.

Always ensure you align your investments with your values. Do not invest in a business that contradicts your personal values. Additionally, your age, personality, and investing goals will determine the level of risk you can tolerate.

If you are young, you can target long-term investments with higher risks. If you are old, you may prefer short-term investments with lower risks.

Moreover, consider the company you invest in to ensure it upholds the values you believe in. For instance, if you believe in environmental sustainability or climate justice, you should invest in sustainable energy companies. With that information, you can now delve further into the best 10 ways for investing $20k.

10 best investments for 20k

1. Retirement savings accounts

One of the best ways of investing $20,000 is by opening a retirement savings account. For instance, you can open 401(k) or IRA accounts. 401(k) is a savings plan offered by employers to employees while an individual retirement account (IRA) is a savings account created by an individual.           

If you are employed, you can ask your employer to open a 401(k) account and save $20,000 from your earnings. On the other hand, if you are self-employed or in business, you have the option of opening an IRA and saving $20,000.

The good thing about retirement savings accounts is that they have tax advantages. They offer huge tax benefits such as tax-deferred plans. This means that you will keep more money and pay less tax. In the end, you will have benefitted a lot from this investment plan.

2. Invest in a diverse portfolio of stocks and bonds

The stock market has been profitable for decades.  Therefore, most people always invest here by buying stocks and bonds. However, you cannot invest blindly. You have to invest in a diverse portfolio of stocks and bonds can help spread out your risk and potentially earn higher returns.

Bonds offer fixed-income streams. Therefore, investors who want to invest in short-term portfolios go for bond investments. For instance, retirees prefer investing in the bond market.

If you have $20,000 and you want a reliable investment option, consider investing in the bonds and stocks market. However, ensure you go for stocks or bonds from stable companies, banks, and corporations to avoid losing your money.

If you are in doubt, consider hiring a financial advisor to help you create a portfolio that aligns with your goals and risk tolerance. You could also do your research before you invest in this market.

3. Invest in real estate

The real estate industry is one of the most profitable industries. You can invest $20,000 in this industry and reap huge profits in a few months or years.

You have numerous investment options in this industry. For instance, you could purchase a rental property and earn passive income each month by renting it out. The average monthly rent for a house in the United States is $1372. This is a good earning for an investment worth $20k.

You could also flip a house and potentially earn a profit on the sale. House flipping involves buying a property with the intention of selling it at a profit. However, since you are only budgeting for $20,000, you have limited choices because the average price of a house in the United States is $200,000.

invest 20k

Another possible investment option is buying shares in real estate companies. You can consider crowdfunding or investment trusts in the real estate market. Such investments do not require you to buy physical assets, but they generate profit.

4. Invest in a small business

Think of a small business that requires a capital of less than $20k. For instance, you can invest in a pet business where you offer veterinary services, pet care, and pet foods. You can also invest in a cleaning business and offer services to individual households and corporates.

This type of investment is recommended for those with a strong entrepreneurial spirit. A small business can grow your money and create more opportunities for future expansion. The bottom line is to look for a business with a solid business plan and a history of success.

Some of the highly successful small businesses include dropshipping, photography, beauty and cosmetics, delivery services, fitness training, and child daycare services. This list is not exhaustive. You can think of other businesses that you can start with $20,000.

5. Invest in a high-yield savings account

A high-yield savings account is a savings account that rewards individuals with high-interest rates. Therefore, the money saved in a high-yield savings account grows faster than the one in a traditional savings account.

It may not be the most exciting investment option, but it can be a safe and low-risk way to grow your money. Before you invest in these accounts, you should look for an account with a high-interest rate and no fees.

With a high-yield savings account, you will get at least 10-20% interest on your savings. Therefore, if you invest $20,000 in this account, you expect at least $2000 as interest at the end of the year. That must be a good investment option that does not require you to be actively involved in management.

6. Invest in a certificate of deposit (CD)

Yes, you can invest 20k in a CD. A certificate of deposit (CD) is a type of savings account that offers a fixed interest rate for a set period. This can be a low-risk investment option if you are looking for a guaranteed return.

Investors put their money in CDs for a specified period and earn interest upon maturity. CDs are among the safest investments because they are insured. Anyone is allowed to invest in CDs.

If you have $20k and you want to invest in a certificate of deposit, look for a bank that pays a high-interest rate on the deposit. Then, divide the money into several CDs with durations ranging from 6 months to 5 years.

7. Invest in mutual funds or exchange-traded funds (ETFs)

Mutual funds and ETFs are similar to stocks and bonds. However, instead of buying individual stocks, you are buying a bundle of stocks or bonds. Such an arrangement helps spread out your risk and potentially earn higher returns.

Mutual funds and ETFs create a pool of funds from different investors. That pool of funds is used to purchase stocks, bonds, and other securities. Then, the profit generated is distributed to the investors.

If you have 20k, you can decide to put it in two mutual funds or one ETF. They are run by professionals, meaning that the risks of failure are minimal. Therefore, this is an investment option that everyone can consider.

8. Invest in dividend stocks

Dividend stocks are preferred by people who want a passive investment. Generally, dividend stocks are the securities offered in companies that pay regular dividends. They pay quarterly, at a yield rate of 2% to 5%.

The risk of losing money in dividend stocks is usually low because they are offered by relatively stable and popular companies. Therefore, this is a good investment option for risk-averse investors.

Before investing your $20,000 in dividend stocks, research thoroughly. Ensure you are dealing with a reputable company. If you do it the right way, you will enjoy a good return on your investment.

9. Invest in yourself

This option sounds unlikely but it is a good investment. You can use your $20,000 to develop yourself and prepare for your career goals. This is a long-term investment and the benefits can only be realized after several years.

Investing in yourself means developing your skills, health, qualifications, and knowledge base. You can use that money to pay for a college degree or further your education. If you improve your qualifications, you will get higher-paying jobs, which means that your investment will have paid off.

If you want to invest in yourself, consider taking a course or obtaining a certification that can help you advance in your career and potentially earn a higher income. Go for a highly marketable course or take a master’s or PhD degree.

10. Pay off debt

Is paying debt an investment? It does not sound like an investment. Well, it is technically not an investment, but it is a great way to secure your financial future. Consider using your $20,000 to pay off high-interest debt, such as credit card debt, and free up more money for future investments.

The logic behind this investment option is that when you pay debt, you clear the interest accrued on your debt. As a result, you save the money you would pay as interest on your debts if you prolonged them. In short, your financial position improves as you reduce liabilities.  

The bottom line

There are endless investment opportunities for anyone who wants to invest $20k. If you are wondering which is the best way to invest $20k, then you have come to the right place. MyFinanceMaster has compiled a list of the best ways to turn $20000 into a steady passive income.

However, if you are unsure about which option is best for you, you can consult a financial advisor. The advisor will help you implement the investment option that fits your financial goals and values.