$30k is a big chunk of change and certainly something to be proud of. But if you want to turn that tidy sum into an even tidier nest egg, stashing your cash under the mattress won’t do the trick. Instead, you’ll need to make that money work for you and grow your wealth over time.
In this guide, you will find ideas for how to invest $30k, along with the pros and cons of those approaches as well as what to consider before you start investing.
Intermediate Traders and Investors
What kind of investor are you?
Before you determine how to invest that $30k, answer these questions:
- What is my investing goal? Why are you saving that hard-earned cash? Is it for a snazzy new ride or a down payment on a house, or are you playing the long game and squirreling away for retirement? This is important because a short-term goal will require a different approach to a long-term goal;
- What is my risk tolerance? Investing is inherently risky, and your risk tolerance will play a significant role in how you allocate your assets;
- How much do I want to be involved? Decide which investing approach suits you best: active or passive investing. Now, if you’re in it for the long haul and not just looking for a quick buck, both approaches can be lucrative. But for all beginners out there, we urge you to focus on passive investing strategies rather than trying to beat the market. And if you’re feeling a bit lost, don’t hesitate to seek guidance from a financial advisor. They can help you navigate the complexities of investing and steer you toward the right strategy for your goals.
Ultimately, your age, risk tolerance, investment time horizon, and financial goals all factor into your investment style. And understanding who you are as an investor can help you adjust your method as you age and your financial goals change.
Before we proceed further:
Best ways to invest $30k
Congratulations, you have an extra $30k burning a hole in our pocket. Whether that 30,000 dollars is from a sudden windfall, an inheritance, or good old-fashioned saving, the question is, how can you put this money to work? And while this might not seem like a life-changing sum of money, if invested wisely over time, it has the potential to grow into a sizeable nest egg.
The options are plentiful. But ultimately, there’s no one-size-fits-all solution. Instead, selecting the financial instrument(s) that align with your specific needs will help you reach your future financial goals.
Below you will find our pick for the five best ways to invest $30k:
- Stock market;
- Index funds and ETFs;
- Fixed income;
- Individual retirement accounts (IRAs);
- Real estate — REITS.
Now, let’s get into it!
1. Stock market
In this section: How to invest $30k in the stock market?
Investment type: Long-term growth
Risk Level: Varies
Broker to consider: Regulated, industry-leading low-cost trading platform eToro.
Intermediate Traders and Investors
Disciplined investing in the stock market over decades is generally the best way to build long-term wealth. And though returns can vary from year to year, they still hover around the 10% mark. Indeed, the S&P 500– a proxy of the US stock market overall– has been averaging 10.21% since its inception in 1957.
However, picking the right stocks for your portfolio can be difficult, and ultimately there is no one-size-fits-all solution. For example, some investors play it safe by investing only in blue-chip companies; some prioritize dividend income, while others prefer growth stocks. There are also various sectors to explore, from traditional choices like technology and consumer goods to more niche options like the metaverse. The key here is to conduct thorough research to gain a solid understanding of your investment options.
Remember, it’s always a good idea to consult with a financial advisor or investment professional who can help guide you in making informed investment decisions that align with your financial goals and risk tolerance.
Once you know where to invest, you can shop for an investing platform. For the hands-on types, this typically means opening an online broker account, such as eToro or Interactive Brokers. Alternatively, if you’re someone that requires more assistance, investing through a robo-advisor might be the right choice for you.
Pros and cons of investing in the stock market
- Potential for high returns: Historically, the stock market has offered higher returns than more conservative asset classes such as bonds;
- Liquidity: Stocks can be bought and sold easily, allowing you to access your money quickly if needed;
- Easy and inexpensive: Most online brokers offer commission-free trading and no account minimums, so you can start investing with as little as $10;
- Build long-term wealth: Generally, stocks yield a generous annualized return over the long term, so at the minimum, you’ll be able to stay ahead of inflation.
- Risk of loss: Stocks can be volatile, and the value of your investments can fluctuate significantly over time. There is always the risk of losing some or all of your investment;
- Time: When buying individual stocks, you must manage your portfolio yourself. That means regularly following various company health indicators as well as broader market trends and adapting the asset allocation in your portfolio as necessary. Unfortunately, doing all of that can take a lot of work.
- Emotional rollercoaster: Stock prices can fluctuate widely and rapidly, leading to emotional responses like fear or greed, affecting your decision-making process for the worse.
So before you put your money in a dividend stock, investigate the company’s financial health metrics through technical and fundamental analysis.
2. Index funds and ETFs
In this section: How to invest $30k in index funds and ETFs?
Investment type: Long-term growth
Risk Level: Varies
Broker to consider: Regulated, secure platform Interactive Brokers.
Passive investing is a long-term investment strategy for building wealth in which investors buy and hold a diversified portfolio of financial instruments with minimal active trading in the market.
Index investing is the most common form of passive investing. In this buy-and-hold strategy, investors purchase exchange-traded funds (ETFs) or mutual funds that track major market benchmarks and hold them over a long time horizon. The objective is to reproduce the financial index performance overall, to match, not beat, the market.
The three most broadly tracked indexes in the United States are:
- The S&P 500;
- Dow Jones Industrial Average;
- Nasdaq Composite.
Pros and cons of investing in index funds and ETFs
- Diversification: Index funds help reduce risk by spreading your money across many companies or sectors;
- Low fees: Compared to actively managed mutual funds, index funds typically have lower costs;
- Easy access: Online brokers make access to the stock market easy and inexpensive;
- Liquidity: ETFs and mutual funds can be bought and sold easily, allowing you to access your money quickly if needed;
- Transparency: Investors know precisely where their money is allocated as index funds are required to disclose their holdings regularly;
- Convenience: Owning an index is far less complicated to manage than a portfolio of individual stocks that require constant research and adjustment;
- Simplicity: Taking a hands-off investment approach can eliminate many of the biases and uncertainties that can arise when you pick stocks individually.
- Limited control: ETFs are designed to track an index or sector, which means that investors have limited control over which specific companies or assets are included in the fund;
- Volatility: Index funds follow their benchmark index regardless of the state of the markets, meaning if the market conditions are poor, the index funds will also follow the indexes downward. In this case, a good active manager may be able to limit the downside by hedging the portfolio or moving positions to cash;
- Slow gains: Buying and holding can be a winning tactic in the long haul, but evening out the risks also flatten out the rewards.
In this section: How to invest $30k in fixed income?
Investment type: Conservative investments and retirement
Risk Level: Low
Fixed-income investments are debt securities that provide a fixed or predictable return over a predetermined period of time. These investments generally involve lending money to an issuer, such as a corporation, government entity, or municipality, in exchange for a stream of interest payments and return of principal at maturity.
Some common types of fixed-income investments include:
- T-Bills: Debt securities that mature in 1 year or less, issued by the US government at a discount to its face value, allowing investors to earn that difference at maturity;
- T-Notes: Debt securities issued by the US government that mature in 2 to 10 years and pay periodic interest;
- T-Bonds: Debt securities issued by the US government that mature in 10 to 30 years or longer and pay periodic interest (longer maturities typically have higher coupon rates);
- TIPS: Bonds that are indexed to inflation;
- Certificates of Deposit (CDs): FDIC-insured savings accounts offered by banks or credit unions with maturities of less than five years that pay a fixed interest rate until maturity.
These investment products allow investors to preserve capital while providing steady (albeit modest compared to stocks or ETFs) income, making them popular with conservative investors and those nearing retirement.
Pros and cons of fixed-income investments
- Stability: Generally considered less volatile than equities, providing a more stable investment option for risk-averse investors;
- Predictability: Offer a predictable revenue stream, making them a good option for those seeking regular income payments;
- Diversification: Including fixed-income investments in your portfolio can help diversify your holdings and reduce overall risk;
- Your initial investment is safe: Unless withdrawn early or sold on the secondary market for a loss, fixed-income investments don’t risk the loss of principal.
- Low returns: Have historically produced substantially lower returns than stocks, which may not be sufficient to keep pace with inflation;
- Hypersensitivity to interest rates: For example, in a rising interest rate environment, fixed-rate bonds will underperform in comparison to newly issued bonds;
- Inflation risk: Inflation can erode the value of future income payments;
- Limited growth: This will not offer the same growth potential as the stock market, which may limit long-term portfolio growth.
4. Individual retirement accounts (IRAs)
In this section: How to invest $30k in IRAs?
Investment type: Long-term growth and retirement
Risk Level: Low
An IRA will be your go-to retirement option if your employer does not offer retirement plans or if you want different investment offerings than those provided by your workplace.
IRAs let you invest in various asset classes, including bonds, stocks, ETFs, and mutual funds.
There are two kinds of IRAs: a traditional IRA, which gives you an upfront tax deduction, and a Roth IRA, which allows for tax-free retirement withdrawals. In 2023, contributions of up to $6,500 (or up to $7,500 for those over age 50) are allowed per year into an IRA, leaving you with an additional $2,500 to $3,500 to invest elsewhere.
Pros and cons of IRAs
- Tax benefits: Assets in IRAs grow tax-free or tax-deferred;
- Retirement savings: IRAs are designed for retirement savings and offer an easy way to save for retirement over the long term;
- Investment flexibility: Wide range of investment options, including stocks, bonds, mutual funds, and other assets, allowing for a diversified portfolio.
- Contribution limits: IRAs have strict annual contribution limits;
- Penalties for early withdrawals: Early withdrawals from traditional IRAs before age 59½ may result in a 10% penalty and taxes on the withdrawn amount;
- Mandatory withdrawals: Traditional IRAs carry mandatory withdrawals, starting when you reach age 72.
Remember to take advantage of employer-sponsored retirement options
5. Real estate – REITs
In this section: How to invest $30k in real estate?
Investment type: Long-term growth and diversification
Risk Level: Medium
Broker to consider Regulated comprehensive multi-asset trading platform Interactive Brokers.
In addition to the stock market, you might also want to invest in real estate. Unfortunately, with rising property prices in many markets, $30k might not be enough for a down payment for an investment property. However, you can still get exposure to real estate by investing in REITs.
REITs are companies that own, operate, or finance income-generating real estate. REITs (as well as REIT mutual funds and REIT ETFs) are publicly traded and can be bought or sold via a brokerage account, making them the most liquid real estate investment available.
Pros and cons of investing in REITs
- High dividend yield: REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends, meaning they offer some of the highest dividend yields on the market;
- Diversification: Offers a ready-diversified real estate portfolio for any budget without requiring much time or expertise;
- Liquidity: REITs are publicly traded on stock exchanges, making them highly liquid assets (unlike physical real estate investments);
- Solid returns: Returns over the past 20 years have outperformed the S&P 500, as well as the rate of inflation;
- Exposure to the real estate market: Provides value appreciation and rental income without the need for direct ownership or management of properties.
- Slow growth: Because 90% of a REITs taxable income is paid out as dividends, only 10% is reinvested into the REIT to buy new holdings, affecting growth;
- Interest rate sensitivity: REITs need to raise external debt and equity capital from investors to grow. Therefore, higher interest rates increase a REIT’s cost of debt and make it harder to achieve profitable growth, leading to lower profits and reduced dividend payouts;
- Sector concentration risk: If a REIT is concentrated in a particular sector, such as retail or hospitality, and that sector is negatively impacted (e.g., the COVID-19 pandemic), you can experience devastating losses;
- Tax implications: REIT dividends are taxed as regular income.
Real estate crowdfunding platforms
How to safely invest $30k — things to consider
Although you may be eager to start investing your $30k, you should first evaluate your overall financial position and ensure that you have fulfilled the following:
- High-interest debt is dealt with: Prioritize repaying any high-interest debt, such as credit card debt or payday loans, before you embark on your investment journey. Indeed, with an average interest rate of 19.42% (in 2022), these debts can quickly eat away at any potential investment gains. In contrast, low-interest debts like mortgages or auto loans don’t need to be repaid before you start investing;
- You have an emergency fund set up: Create an emergency fund to serve as a buffer to unexpected expenses, such as medical bills, car repairs, or job loss, before you start investing. A general guideline for most individuals is to set aside six months’ worth of living expenses in a deposit account like a savings or money market account, where the principal is not at risk. It is worth noting that having this money readily available will also help you avoid dipping into your portfolio, using high-interest credit cards, or resorting to loans.
Then, as you begin your investment journey, make sure to:
- Diversify: To spread your risk and protect yourself from significant losses, distribute your investments across different financial instruments, industries, and categories. Moreover, a diversified asset allocation is vital in determining whether you will achieve your financial objective. For instance, if your portfolio does not carry enough risk, your investments may not generate a sufficient return to reach your goal;
- Spread out your investments: Instead of investing all of your money once, try utilizing a dollar-cost averaging (DCA) strategy, in which the total amount to be invested is divided into periodic purchases of a target asset over a period of time. Spreading out your investment this way can lower the overall impact of price volatility and decrease the average cost per share;
- Stay wary of fraud: Scams are getting increasingly sophisticated. Moreover, con artists are often highly articulate, charming, and knowledgeable, with credible websites, testimonials, and documents that are difficult to distinguish from genuine ones. However, the old adage holds true in this case: if something sounds too good to be true, it probably is. Therefore, ensure you thoroughly understand the investment before entrusting someone with your funds. Begin by searching for the company’s financial statements on the Securities and Exchange Commission’s (SEC’s) EDGAR filing system. You can also refer to the Financial Conduct Authority’s (FCA) list of warning signs here and the SEC’s list of questions to ask about your investments to ensure their legitimacy here.
The key to investing $30k is to focus on building wealth for the long haul by creating a solid financial plan that aligns with your risk appetite and financial goals. Don’t just throw your money at random investments and hope for the best. Instead, stay focused, do your research, and make strategic investment decisions. Who knows, if you invest your $30k wisely, you might soon find yourself asking how to invest $100,000, or even $200,000 – the sky’s the limit.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to invest 30k
How to invest 30k?
The best way to invest $30k is to spread it across various asset classes, including stocks, index funds, and REITs, as well as more conservative options such as bonds or CDs.
How to invest 30k in real estate?
The best and most accessible way to invest 30k dollars in real estate is to invest in REITs, which provide investors with ready-diversified real estate portfolios, attractive dividend yields, and high levels of liquidity (particularly compared to physical real estate investments).
How to invest 30k in stocks?
The best way to invest $30k in the stock market is to invest in ETFs or mutual funds that follow major market indexes, delivering instant diversification and reduced risk to your portfolio.