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10 ways to increase the value of your money

10 ways to increase the value of your money

If you have $ 20k or have recently come in to invest - congratulations! It is not easy or common to

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If you have $ 20k or have recently come in to invest – congratulations! It is not easy or common to save (or inherit) that kind of money in a short period of time.

But if you do not invest that money in the right way, you are actually losing money due to inflation.

Here are nine ways you can invest that money, including suggested grants and other tips.

Invest with a Robo Advisor

Investing your $ 20,000 in a robo-advisor is a great option because you will immediately be able to dip your toes into the stock market in a widely diversified way.

A robo-advisor is like a financial advisor, but instead of a person choosing expensive investments for you, a company like Improvement create a range of algorithms to select, diversify and adjust your investments over time, all based on your financial resources, risk tolerance and investment objectives.

Read more: The best robo-advisors

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

Currently, you can contribute up to $ 6,000 a year to an IRA, unless you are older and meet the catch-up qualifications.

Related: Roth IRA or Traditional IRA: What Should You Choose?

2. Invest with a broker

Although many people prefer to invest with robo-advisors, there are many who like to invest on their own. Brokers can help you do just that. Before online brokers came on the scene, people paid hefty fees to a broker who would trade on their behalf. It quickly becomes 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.

Read more: Best Online Brokerage Accounts for Beginners

3. Make a 401 (k) exchange

If you are employed and have $ 20,000 to invest, one option is to “exchange” the money effectively in your 401 (k).

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

Say you make $ 40,000 a year and you now put 5% in your 401 (k). Not including any employer contest, it’s about $ 2,000 a year. Let’s say now you’re getting $ 20,000 in what you want to invest.

You can save that $ 20,000 in a liquid, high-yield savings account, and then increase your 401 (k) contribution so that it will not feel like you are living off less. (Although I still challenge you to do that.)

So instead of a 5% contribution, it changes to 50% – yes 50%. After a year, you will not only have invested $ 20,000 in a 401 (k), but there is another big advantage: you have just reduced your taxable income by 50%. If you contribute to your 401 (k) you will not be taxed on those contributions. You are only taxed on what is left in your salary.

That means in the eyes of the government you only made $ 20,000 in one year, not $ 40,000. You will pay less tax in most cases, so this is a win-win.

Read more: How much should be in your 401 (k) at 30?

4. Invest in real estate

It would probably take more than a $ 20,000 investment to start a single family rental property, but that does not mean you can not start with real estate if you want to. There are companies out there where you can put your money together with other investors and make big investments as a group.

Until recently, you had to be an accredited investor to invest in these types of projects (or had a lot of money to put in.) But now there is a real estate opinion funding site called Fundrise that create loans for individuals or groups buying commercial property.

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

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

Now those of you who have read my thoughts on investing over the years know I hate it to correlate past performance with future returns, but it is noteworthy that Fundraiser has historical annual returns between 8.7% and 12.4%.

It’s hard to ignore.

Fundrise requires a minimum investment of $ 10 – which is very cheap – and makes it easy for you to start investing in real estate without sinking all your money into real estate or expensive REITs.

Read more: Can You Make Money In Real Estate? Here’s what the experts say

5. Put the money in a savings account

If you do not have an emergency fund, you should definitely put money in a savings account. Traditional advice is to save six months’ expenses in an emergency fund.

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

Read more: Emergency Funds: Everything You Need to Know

6. Try peer-to-peer loans

Peer loans are a way to lend money to someone else who needs it. It can be for anything: a business idea, student loans, or just paying off credit card debt.

The advantage of peer-to-peer loans (or P2P loans) is that your return can be much higher than when investing in stocks or bonds. However, the risk is much greater because many people will not repay the loan on time or will not repay it at all.

If you are going to look at peer-to-peer lending as an option to invest a portion of your $ 20,000, make sure you do as much research as you can.

You can read our reviews of two of my favorite peer lenders: LendingClub Bank and Prosperous. Before you dive into P2P loans, make sure you do your research as the risk is considerable.

Read more: Do you need to invest in peer-to-peer loans?

7. Pay for an education

My dad once told me that the only thing anyone can ever take away from you is your education. It has remained with me to this day, for it is true.

You could lose all your money in the stock market. Your business may fail. But if you have a strong education and a degree, it will never go away.

If you do not have a college degree, consider getting one in something you really enjoy, but it is also marketable. If you already have a university degree, consider pursuing an advanced degree, such as a master’s degree or a Ph.D.

Low cost (and even free) education options

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

  • Udemy is a market of thousands of online courses. They almost always have a sale, and you can often get very good classes for less than $ 15. You can search by topic, then by popularity to see what sells. You can also preview the course syllabus before you buy so you know exactly what to expect.
  • Coursera is an excellent option if you are looking for more formal or business skills. For example, if you want to learn business operations, you can take a Coursera course. All courses are in partnership with a major university or company, and they are all self-paced.
  • Khan Academy has a cool background – Salman Khan was a lawyer (among others) and decided he wanted to create videos to help people learn somewhat complex topics, such as personal finance. It eventually grew into a full-scale non-profit organization working closely with Bank of America. They have all kinds of topics, including topics for kids, and most of the content is step-by-step explanatory videos.

8. Pay off debt

One of the best returns on your money is to pay off higher interest debt.

Yes, believe it or not, one of the best investments you can make is to pay off your debt, especially your credit cards. If you do not have credit cards, pay off any other type of debt you have.

Read more: How to pay off credit card debt fast

Think about it this way: the money you will eventually save on interest by having no debt is going to far exceed any return you get in the investment market today. This includes real estate, stocks, fine arts or anything else.

The math about this is also simple. Suppose you have a credit card with an interest rate of 15%. If you pay off that card, you effectively earn 15%. And it is a quick return that is not accompanied by any research or speculation, as there may be with stocks or real estate.

And it can be even worse than that. Say you have a personal loan at 25% (yes, it can happen). If you pay only the minimum payment for it every month, it will end up costing you a huge amount of money. Money you could have otherwise reinvested.

If you are 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 off your debt. And that $ 20k will definitely make a dive.

Summary

Remember that diversification is the key, especially with this kind of money. I suggest you do not put all your eggs in one basket unless you really know what you are doing.

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

Whatever you do, the most important thing is not to just put that money in your checking account because you will lose a world of opportunities.

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