Investing is not so much about spending power as it is about what you decide to do with your money. This is an especially important lesson to learn when you’re just starting your investment journey. That being said, figuring out exactly how your money should be used can be the most difficult part of the process. The good news? There are plenty of great suggestions out there, and for those who have $5,000 in their pocket that they’re just waiting to grow, we’ve compiled a list of some of the best opportunities to get you off on the right foot.
Table of Contents: Shortcuts
- 15 Ways to Invest $5,000
- Low-Risk Investment Ideas
- Medium-Risk Investment Ideas
- High-Risk Investment Ideas
Considerations to Make Before You Invest
In our previous guide for investors with $1,000 to begin allocating to their favorite investment vehicles, we made sure to highlight the importance of taking the right financial precautions before engaging in any type of risk. Generally speaking, this is because someone who may only have $1,000 to invest may be very new to the concept and have other items that are more important to focus on at this point in time.
However, seeing that this is a guide for those with $5,000 to invest, there may be a whole different set of considerations to make depending on your personal finance journey. Before we dive into this guide on recommendations tailored specifically for your needs, here are a few considerations to make before you start investing.
1. Where Am I Currently With My Financial Goals?
Thinking about the money that you’re going to be able to grow with your $5,000 can be exciting. But it’s easy to jump into investments with the promise of profit, only to ignore other things that may require even more attention at this point in time.
For example, some areas of your life that may need to be taken care of before you begin seriously investing your money into other places include paying down any debt that you have (whether these are old student loans, personal payday loans, or even past due balances on credit card accounts), saving more money (going without savings is never recommended as you never know when a rainy day may strike), and ensuring that the $5,000 you plan on investing couldn’t be better spend on your day-to-day expenses.
Take some time to ask yourself, where am I at with my financial goals? Is this $5,000 a surplus that can be spent confidently or am I possibly overlooking certain responsibilities that could use these funds. When it comes to investing, the first step to take is to make sure that investing is right for you. Don’t worry! You can always come back with $5,000 later once you’ve taken care of these other responsibilities.
2. What Level of Risk Am I Willing to Settle For?
As you’ll soon discover, there are plenty of great investment opportunities at the $5,000 level. However, not all of these may be suitable for your money. For example, while riskier investments can often offer the greatest opportunity for profit, a loss is also a greater possibility as well. For some investors, the first $5,000 that they invest is not something that they’re looking to lose.
Consider the level of risk that you’re looking for in an investment, and begin with those that best represent your level of comfort when you’re beginning to put your money into various financial vehicles.
3. What Do My Investment Goals Look Like (and What Are You Already Invested in)?
Investing for the sake of investing does not come without benefits. However, it’s essential that you have goals that help you progress in your financial journey as well. Generally, you’re going to want to look for investments that help you build greater wealth in the short-term to support you financially, investments that fall somewhere between long-term and short-term investments to support both ends, and long-term investments like retirement accounts that are designed to provide you with support in the future.
That being said, you may be limited in what you can do with $5,000, so it’s best to consider what your most urgent needs are and how you can accomplish this with your first investment. If you’re already investing in certain vehicles, you may want to allocate some of your funds towards those existing investments as well.
Remember, if you’re going to invest, invest consciously!
15 Ways to Invest $5,000
In this guide, we’re going to take a bit of a different approach and provide you with investment ideas based on risk level. Hopefully, the previous recommendations have encouraged you to assess your current financial situation and investment goals to ensure that you’re getting the most out of your investment activity. Armed with this information, you can then choose from the right risk category and find a vehicle that’ll answer your question on “How To Invest $5,000”.
If you’re ready to grow your wealth, let’s get started!
Low-Risk Investment Ideas
If you’re erring on the cautious side for your first investment, there are plenty of low-risk investment ideas that you can turn to as you get started. Let’s take a look at some of the best low-risk ideas for your $5,000.
1. High-Yield Savings Accounts
Arguably the safest investment opportunity for those looking to experience no risk when they start investing is a high-yield savings account. High-yield savings accounts aren’t necessarily considered an investment by everyone, but because they offer a safe place to store your cash as well as interest rates that help your money grow over the years, they often make the cut for newer investors.
The one major disadvantage that comes with high-yield savings accounts and other low-risk investment opportunities is that the interest rate provided generally does not account for the rate of inflation. For those who are simply looking for somewhere safe to put their $5,000 and allow it to grow, a high-yield savings account may be right for you. If you’re focused solely on profitability, however, you’re not likely to see the growth you need in order to cope with inflation, resulting in a loss in your investment as the value of the dollar weakens.
This is something that you should keep in mind as you are navigating some of the low-risk ideas that we present below as well.
2. Certificate of Deposit (CDs)
A certificate of deposit is an investment where you pay the bank a certain amount of money and, in return, the bank provides you with a set interest rate over the term of the agreement until your money is ready to be withdrawn. The interest rates may be better than high-yield savings accounts, but it depends entirely on the bank that you decide to do business with. Make sure that you do your research and find the best CDs for your investment.
Another thing to keep in mind when considering CDs is that most banks will charge you penalties and fees for withdrawing your funds before you reach the final date of your agreement. If you’re worried about accessing your money in the future, it may be best to invest only a portion of your money into a CD and another portion of it into an asset that offers greater liquidity.
3. Treasury Notes, Bills, Bonds, TIPS
All of these investments are typically lumped under one category and for good reason. Each of these types of investments are essentially loans that you’re offering the government when you decide to use these vehicles. Much like CDs, the government then offers you incentive in the form of interest over the course of the loan. The difference between the items listed above? What you’ll find is that each of these offers a different loan length and interest rate. The breakdown is relatively simple.
- Bills traditionally offer a year-long agreement (or less).
- Notes are held for a longer time, with some options being 2, 3, 5, 7, or up to 10 years.
- Bonds will range anywhere from 20 to 30 years in length.
- TIPS are a bit different as these are securities where the principal value will adjust based on inflation (which is definitely something to consider if you’re worried about the length of time on some of the options above).
Another similarity that these types of investments share with CDs is that you are able to sell your bonds before they mature. However, you will lose the interest that you could’ve made by waiting until the end of your loan agreement. Something else that you need to look out for is non-existent interest rates. Although this sounds nonsensical to any investor, some bonds actually produce little value, meaning that your money will actually be lost over the next few decades rather than grown. Consider all of the items above if you decide that bills, notes, bonds, or TIPS sound like the right investment for you.
4. Money Market Accounts or Funds
It can be difficult to figure out which type of low-risk investment is best to put your money into, especially when you’re up against investments that are illiquid and carry fees for taking out your money sooner than the agreed-upon terms. Fortunately, there are ways to circumvent these common issues and still invest in your favorite low-risk options. One solution is by putting your money into a money market account or money market fund.
A money market fund allows you to invest in a pool of low-risk vehicles like bonds and short-term loans so that investors can diversify their portfolios with relative ease. Of course, these assets are still very low-risk, so you can’t expect the same types of returns that you would with other funds that you may find further down this guide.
The best part about money market funds? You don’t have to worry about losing out on your investment if you decide to sell your assets. Unlike CDs or treasury options like notes or bonds, there are no consequences for taking your money out whenever you want. This makes it a great option for those who may enjoy the benefits of low-risk options but don’t want to deal with the hassle of waiting until their loan agreements end.
5. Cash Management Accounts
One of the most intriguing low-risk ideas that may confuse investors is the cash management account. Many liken it to a savings account, but you’ll also find it listed under investment opportunities as well as… checking accounts? Although the concept of a cash management account can seem confusing and strange, the truth is that it’s much simpler than it seems.
A cash management account is a type of catch-all often offered by brokerages that gives you the ability to lump your most necessary financial services together. This gives you the ability to do your checking, saving, and investing all under one provider. The benefit? Cash management accounts will generally offer higher interest rates than most savings accounts you’ll find with your local banks. They may also offer you other benefits that make your money more accessible and help you grow your cash over time, such as mobile banking capabilities or cashback on certain purchases.
Of course, cash management accounts do come with their disadvantages. One of the biggest being that, if you’re already banking with another institution, it doesn’t make much sense to take all of your money to a brokerage. Although not a disadvantage, it’s also important to pay attention to the fees and management costs associated with your chosen cash management account. You don’t want to be spending more on these costs than your investments are bringing in. However, if you’re not too concerned about costs and you have been looking for a new place to handle your banking needs, you should be able to find the right brokerage for you that can offer you access to checking, savings, and investments for relatively low management costs and banking fees!
Medium-Risk Investment Ideas
The concept of risk can be difficult to gauge when you begin thinking of investing your money. However, it becomes easier to understand the different risk levels when you see live examples of investment types that fall within those categories. Take, for example, the aforementioned vehicles. These investment ideas carry little to no potential for you to lose your money along the way. Below, we’re going to review some investment ideas that carry greater risk but still err on the safer side.
6. Corporate Bonds and Preferred Stocks
These two ideas are actually lower risk than some of the other options you’ll see below. However, they come with greater risk than the low-risk ideas in the previous section, so we thought it best to open up this list with these for investors who are still hesitant about taking on more risk with their $5,000.
Corporate bonds are very similar in nature to government bonds, with the exception being that you’re providing a small loan to a business instead. The risk associated with these vehicles is dependent upon who you decide to buy a loan with. For example, if you invest your money into an established company with a great track record, you’ll likely see your money grow as the chances of them shutting down are highly unlikely. If you choose to invest in a company with no track record, however, the overall risk grows.
Meanwhile, preferred stocks blend the benefits of bonds and stocks. Like bonds, you’re guaranteed to receive a fixed return on your investment. But much like their name suggests, preferred stocks pay out your dividends quarterly. Even better, the payout that you receive is not dependent on the health of the stock. If the value fluctuates, you still receive the same rate that was agreed upon when you first purchased the stock.
The downside? If the company should lose profitability, they can stop paying out. If they go bankrupt, bondholders will also receive payouts before those holding preferred stocks see theirs.
Whether you’re interested in corporate bonds or preferred stocks, always do your research into the company you plan on investing in to avoid any unnecessary risk along the way.
7. Individual Stocks
As you’ll discover in the next suggestion, there are plenty of great opportunities to invest in a wide array of stocks and securities without having to do the work of managing them on your own. However, some investors may prefer to hold onto certain stocks and manage them. In this case, you’ll want to invest in individual stocks.
But how exactly do you begin investing in individual stocks? The truth is that it’s much simpler than it appears. To get started, all you have to do is open up a brokerage account. There are quite a few brokerages out there that you can choose from, but some of the best options to work with include TD Ameritrade, Fidelity, and E-Trade. Once you’ve signed up with the right company for your needs, it’s simply a matter of doing your research, picking your favorite stocks, and holding or trading them.
8. Exchange-Traded Funds, Mutual Funds, and Index Funds
Not everyone wants to go through the time and effort it takes to research individual stocks, understand the stock market, and, hopefully, profit from their endeavors. Fortunately, if this isn’t appealing to you, you don’t have to. Instead, you can invest your $5,000 into vehicles like exchange-traded funds (ETFs), mutual funds, and index funds.
Each of these share similarities, but it’s where the differences lie that will determine which one you’ll find is the best fit for your needs and your money. Let’s break each of these down to understand what they have to offer you.
- Exchange-traded funds: ETFs are a security that offer you the ability to invest in a collection of various securities like stocks. ETFs will often follow certain indexes as well, such as the S&P 500. Why invest in an ETF? An ETF is often quite affordable for beginning investors, and it gives you the diversification that you need in order to protect your investment against risks. Plenty of brokerage accounts offer ETFs, and you can save money by looking for those that offer Robo-advisors to limit the amount that you have to pay in expenses such as management fees.
- Mutual funds: While exchange-traded funds may focus on a specific index or industry, mutual funds are professionally managed and are designed to help you earn money based on the experience of the organization managing your portfolio when you decide to buy into a fund of your choosing. Because of the nature of these funds, choosing this option may be a bit more expensive as you can expect to deal with additional fees as long as your account remains open.
- Index funds: One final type of fund that you may come across is an index fund. However, while an index fund looks different than the other two, the truth is that an index fund is actually more of an umbrella term for ETFs and mutual funds, which is due to the fact that they track a specific index. So while you may see this term, you’ll only really need to worry about knowing the difference between the two items listed above!
These are some of the most popular investment ideas that you’ll often see when asking for advice, so if you’re wishing to start your journey relatively easily and confidently, making the decision to put your money into an exchange-traded fund or a mutual fund is one that’ll offer you a great start.
9. Real Estate Investment Trusts
Generally speaking, investing in real estate requires you to have access to major capital, whether it’s saved funds or loans that you have applied for in order to purchase property. However, not all real estate investment opportunities are like this. One of the most accessible ways to invest in real estate is by turning to real estate investment trusts or REITs.
REITs give you the ability to invest in a company that either invests in or is involved in the ownership and management of income-producing properties. Certain platforms like Fundrise have made it easier than ever to begin your real estate investment journey with limited capital. However, it’s important to know that, with REITs, you don’t have full control over where your income is being invested into.
If you’re looking for a greater say over your $5,000, you’ll most likely want to wait until you have more money to dedicate to various properties or investment opportunities.
10. Take a Closer Look At Precious Metals
Interestingly enough, very few investment platforms recommend precious metals as an investment. To a degree, this is understandable. After all, precious metals are not the type of investment where you’re necessarily going to see major gains or be able to quickly sell your commodities at a moment’s notice. Additionally, these seemingly safe assets can carry risk. But when invested in responsibly, they can often promote a healthier portfolio as well.
One of the main reasons why precious metals are such a great investment is due to the fact that they have inherent value and practical applications in modern-day practices. Popular options like gold, silver, platinum, and palladium have a place within our society besides making goods that we perceive to be valuable. Gold is generally the leader of the precious metal collective as investors will build up their own hoard as a way to hedge against political/economic risks, guard their money against inflation, and, in the event that things take a turn for the worst, trade it for day-to-day necessities. Gold’s value will generally dip when buyers sell and rise when more people are looking to buy.
Meanwhile, silver, platinum, and palladium make good investments due to the fact that they have practical applications rather than just a store of value, something that is more of a focus for gold investors. Of course, investing in the physical metals themselves isn’t the only opportunity to safeguard your finances. There are plenty of non-physical vehicles for commodities like ETFs, individual stocks, mutual funds, options and futures (we’ll dive a bit deeper into these types of investments further on in this guide), certificates, and bullion. The only thing to remember is that investing in precious metals is often something that is done over the long-term. These assets can prove volatile, and if you pour way too much of your money into them and ignore other investment opportunities, you can lose a great deal of your investment.
High-Risk Investment Ideas
For many, growing wealth over time is the biggest focus. But some investors may be looking for more aggressive ways to invest their money so that they can start seeing greater returns on their investment sooner. Is this a priority for you? If so, here are some high-risk investment ideas to help you get started.
11. Start Your Own Business Flipping Goods
In our previous guide discussing ways you could invest $1,000, we recommended a few home-based business ideas that require little money to launch. However, while those are all great ideas to start out with, some profitable opportunities may take a bit more money for you to get the ball rolling. One of these ideas is creating a business where you flip goods.
Flipping is something that takes a great deal of dedication and research, but those who truly believe that they can make a full-time opportunity out of it can see returns of a couple of thousand dollars per month within their first year of operating. What can you flip? Some people flip antiques, while others may decide to flip video games, toys, or even used appliances.
Although flipping can be done with relatively little money, you’ll likely want to have some cushion in case a few of your items don’t deliver the returns that you’re expecting. It can also be helpful to invest some money into repairs if you find high-quality products that need a little TLC before they’re ready to find a new home. Additionally, while you can easily advertise your goods on platforms like eBay, OfferUp, or Facebook Marketplace, establishing your own website where you market the products you flip within a specific niche can make it easier to get the results that you’re looking for.
If you’re passionate about taking thrift finds or old items and profiting off of your flipping activities, consider this business idea as a way to use your $5,000!
12. Make Your Own Products or Homemade Goods
Are you someone who’s more creative? Are you looking for a way to invest your $5,000 into something you can get more excited about? If so, you may want to consider using your money to make your own products or homemade goods!
For those who are looking to dip their toes into the water before they launch their own storefront and fully commit themselves to their craft, the best way to get started is to set up your own shop on an already established platform like Etsy. Etsy gives you the ability to create your own storefront and sell your goods through their platform. Although this comes with some disadvantages, like having to pay a certain amount of your sales to the company in order to operate through them, it can give you a better idea of what making and selling your own products will look like (and help you gain some valuable experience with marketing your own business).
Once you start to garner more interest in your goods, you can then switch over to your own shop and sign up with a platform like Shopify or WooCommerce to get started on your fully-owned business. Then, you’ll be responsible for everything from product development to marketing to fulfillment. This can be a major undertaking and you can’t expect profit right away. However, if you understand your target customers, develop the right business skills, and stick with it, it can certainly be a way to take your $5,000 and shoot for the stars with even greater income.
13. Consider Real Estate Crowdfunding
Crowdfunding is by no means a new concept. Popularized by platforms like GoFundMe, crowdfunding gives you the ability to tap into money that you wouldn’t otherwise be able to make besides through raising. Interestingly enough, this concept has spread to a wide variety of industries, including real estate.
Real estate crowdfunding allows companies to raise money from investors so that they can purchase certain properties. Those investors who put their money into the project then essentially become shareholders and are able to earn a portion of the revenue that is regularly produced by that property. This is a major advantage for aspiring real estate investors who can’t fully invest in real estate on their own but who do not want to turn to REITs where they don’t have as much control.
Of course, those who know about crowdfunding know that it comes with a fair share of risk as well. Anyone who believes that they can begin investing in real estate can start their own company and ask for funds. Invest in the wrong company and you can lose all of the money that you offered them. This is why crowdfunding is considered to some to be more of a risk than a viable investment opportunity.
That being said, the good news is that new investors are limited in terms of how much money they can contribute to a crowdfunding effort due to current SEC guidelines. For non-accredited investors that make less than $107,000 annually (or for those who have a net worth of less than $107,000), the cap for your investment is either $2,200 or 5 percent of your annual income or net worth (whichever is less) during a 12-month period. If you make more than $107,000 or have a net worth of greater than that amount, you can invest 10 percent of the lesser option but you must not exceed $107,000 within the given year (something you won’t have to be too concerned with here).
If you do find real estate crowdfunding an attractive way to invest your $5,000 and gain access to passive income, make sure that you do your research on any company you plan on investing with so as to avoid as much risk as possible.
14. Look Into Debt Investments
Investors are often surprised to learn that there are actually far more real estate investing opportunities than one would think would be available for as little as $5,000. So far, we’ve covered investing in REITs as well as pooling your money with other real estate investors in crowdfunding campaigns. However, there’s one more opportunity worth mentioning: real estate debt investments.
When you make the decision to invest in debt, you essentially act as a lender to those who have defaulted on the property’s loan. Because you’re buying into the loan, you then receive some of the fixed interest that is accumulating. While debt instruments don’t have a lot in common with other real estate investments, you’ll notice key differences like shorter overall holding periods (as the loan will need to be paid off at some point), less risk (because investors can take action and seek to foreclose on the property in order to get their money back), and more regular returns due to the fact that they’re dictated by the interest rate of the loan and how much you are expected to earn.
Some things to keep in mind when researching debt investments is that you won’t see the type of profitability you may be looking for because your returns are capped and, should the owner of the mortgage pay the loan off early, you can lose out on the interest that you expect to receive. As it is with all of these high-risk vehicles, do your research and understand which option would be best for your money.
15. Move Into New Territory With Options and Futures
Stocks are by no means an unfamiliar investment to most people. However, there are some investment ideas that may be quite novel to you, with two new concepts being options and futures contracts.
Options and futures are similar in nature but offer one key distinction that’ll ultimately determine which one you prefer. Let’s take a closer look at each of these vehicles to see which one will be the best fit for you.
- Options Contracts: Options are vehicles that are tied to the underlying value of a specific security, such as a stock. When investing in an option, you sign a contract and pay a premium for either a call option or a put option. A call option is designed to help you make money if you agree to buy a stock at a certain date at the strike price (the price of the asset on the day you signed a contract) while a put option allows you to make money if you sell at the strike price during your contract. Put simply, a call option helps you make money when the price rises and a put option helps you make money when the price falls. However, options do not require an obligation. Should something happen and you will not be seeing the profit you expected, you can choose to not sell or buy and only lose the premium you paid.
- Futures Contracts: Futures contracts, on the other hand, require an obligation from you to buy or sell in the future. Futures are generally used for commodities, but they can theoretically be used for other assets. Futures come with a great deal of responsibility and liability and should be approached with caution as futures can be more of a gamble than options are.
With $5,000, you have a bit more money to gain and a bit more money to lose. However, options and futures can still come with more risk than some investors are comfortable with. Use this guide to get a better understanding of what they are and whether they offer what you’re looking for in an investment.
Grow Your $5,000 Now!
It’s never too late or too early to invest. However, that doesn’t mean that there are not wise and unwise investments. While riskier investments can grant you access to the greater profitability you’re looking for, they also come with the potential to lose most or all of your investment along the way. Regardless of where you are in your current financial journey, use the guide above to learn about some great investment ideas at all risk levels so that you can start growing your wealth and preparing for your future today!