A sudden windfall of cash can feel like a blessing from the sky. However, if you want to hang onto that money, you better have something wise to do with it. Even more important than simply keeping the money and not spending it on frivolous things is making sure that it actually works for you and helps you earn even more money.
While many people think that a relatively small sum of money like $5,000 can’t really do too much for them when it comes to an investment, the truth is that you can actually have significant returns. Of course, when it comes to investing there are so many options that it can be a little mind-boggling, especially for people who don’t have a lot of experience with different investment opportunities.
Use this guide to help you figure out the best investment for your $5,000.
When Do You Need Your Money?
Before you decide to invest your money, you need to figure out exactly when you’re going to need it. For example, if you feel that you may need to use the $5,000 in the next year or two, you’ll be looking for a short term investment. These investments tend to allow you to pull your money out quickly without high fees or penalties. Short term investments can allow you to grow your money quickly, but there’s often more risk involved, at least in some cases.
However, if you don’t think you’re going to need your money within the next 10 years, you can make a long term investment that will help you plan for your future and your retirement. Long term investments can help you earn more or they can help you protect your money while still helping what you put away grow.
Short Term Investments
Consider an Online Savings Account
Savings accounts aren’t exactly the best way to make your money work for you, but if you fear that you’ll need your money in a hurry, or you know that you need to have access to it in case of emergencies, an online savings account may be your best bet. Unlike regular savings accounts that you open up at the bank, an online savings account may pay a little more than one-percent. That might not seem like a lot, and in practical terms it isn’t, but at least your money will be doing something for you.
An online savings account is also an ideal option for keeping your money out from under the mattress while you decide what to do with it and weight your long-term investment options.
Open a CD
If you think you might need your money in less than five years, opening a CD account is an ideal way to make some money and make sure you have your cash in hand when you really need. CDs allow you to set a maturity date on your investment so that you’ll be able to pull your money out without paying a big penalty. CDs are also insured by the FDIC, which means that you don’t have a lot of risk involved.
While there are some CDs out there that will allow for immediate access to your money, they generally pay lower rates. Those should be avoided whenever possible since they may not keep up with inflation rates.
Long Term Investments
Managed Mutual Funds
Managed mutual funds are basically purchases in the stock market that are directed by a broker. When you buy a mutual fund, you’re buying a small piece of multiple investments – pieces of different businesses, in fact. The benefits of managed mutual funds are that they can help you earn a great deal of money over a longer period of time. Unfortunately, this comes with more risk. However many investors choose managed mutual funds if they’re willing to take some risks in order to maximize their earnings.
While managed mutual funds can be risky, you can help reduce your risk by talking with your broker. Many wise investors go for a globally balanced mutual fund.
ETFs are similar to mutual funds, but unlike mutual funds they aren’t managed by a broker. That can be a benefit for many people because it allows for more hands-on rebalancing at the end of the year. If you’re interested in trying your hand in the stock market or already know how you want to invest, an ETF may be the best choice.
Typically, ETFs have lower fees than mutual funds because they aren’t managed accounts.