Where and How to Invest $50K

Where and How to Invest $50K

January 27, 2020

Congratulations!

You are taking the first step to becoming an investor just by reading/learning about it.

If you are BRAND NEW to investing altogether - this will be a short but effective guide.

If you have some experience, stick around. You will probably take a few nuggets from this post!

Why Do We Invest?

When talking about where/how to invest money, it is important to first think about the goals you are investing for. Like:

1. I would like to put a downpayment on a property in the next year
2. I need to save for my daughter’s college expenses in 10 years
3. I need to create an income for when I retire in 20-40 years

The purpose you want to use the money for heavily impacts how you should invest it. This is because when you invest, there is ALWAYS risk involved. (No matter what anyone tells you)

The general rule of thumb is - the shorter your goal’s time horizon - the less risk you should take.

That means if you need money saved for emergencies that could crop up tomorrow, cash is your best bet. If you need to save for a downpayment on a house in a year or two - short term government bonds yielding 1-2% right now are the more prudent option.

However, if you have more long term goals or are just generally trying to build wealth. There is no place more appropriate than the stock market.

RELATED POST: Intro to The Stock Market

One of the biggest arguments I’ve heard against investing in the stock market is: “How do you know that the stocks you buy will go up in price?” This one question is probably what keeps most people from investing their money in the first place. They think of investing in stocks as “gambling”.

However, it is more appropriate to think of the stock market as a sort of voting machine. The more people that think a particular business will do well in the future - the more people will buy its stock now - pushing up the price. In the long-term, that business actually has to execute and perform well for the price to stay afloat.

Basically “stock” is just a share of ownership in a business. So you would only buy ownership in the business if you think it will do well, creating a return on investment for you!

If you think business in general will do poorly over the next 10, 20, 50 years, investing is probably not for you. (A doomsday bunker may be more appropriate!)

I personally believe that over time businesses (especially those that make their customers very happy) will do exceptionally well. I want to own those businesses and take part in that growth!

If you do too - here is how you can do it in two simple steps:

1) You Need a Brokerage Account

In order to buy and sell stock you will need a "Brokerage Account". This will connect you to the market through a "Stock Broker". Back in the day these Stock Brokers used to be real people that you had to call, nowadays they are online accounts and are very similar to buying things on Amazon. (Except these purchases will MAKE you money over time!)

The best broker for new investors is Robinhood. (Click here to visit their site) Robinhood is FREE, it is EASY to use, and it is completely trustworthy. About 10 million Americans use Robinhood, and I am one of them!

You will need to sign up with them to be able to buy and sell stocks. When you are registering, they will ask you for very personal information. This is safe and is a regular practice in the brokerage industry to make sure that YOU are the person buying and selling stocks in the account. These are financial assets so it is very important that they know who is doing what.

2) You Need an Investment Strategy

After you open your account, you will need a plan. If you go into the stock market without a plan, it will make one for you and you probably won't like it.

A simple plan could look like this:

“I am going to open a Robinhood Account and fund it with $50,000 to start with in a simple stock index fund. Then I will be able to contribute $100 every Friday for the next 10 years to buy shares in high quality, time tested businesses."

MUST READ: Two of the best stock index funds on the market

Note: The stock market averages 7% returns per year so I use that as my assumption. If you want to be more conservative, use 5%.

At 7%, that $50,000 initial investment + $100 per week will bring you to an account value of over $116,000 at the end of the 10 years and over $500,000 if you do it for 30 years). You can use THIS CALCULATOR to make a plan that works for you!

If you want to try to “beat” the stock market’s average of 7% returns by doing research and picking your own stocks rather than investing in index funds, you can do that on Robinhood as well. Just note that not many people are capable of beating the stock market’s returns over the long-term!

Conclusion

Throwing money into something you don’t understand is not just daunting, it is plain stupid!

Good on you for reading up on how the process works in general. If you would like to understand how stocks trade in a little more detail, check out this post: Intro to The Stock Market

Feel free to ask any questions you have by DMing @MakeDollarsAndSense on instagram, I would be happy to help steer you in the right direction!

MDAS

If you thought this was helpful, terrible, or somewhere in the middle, please leave me feedback in the form of a Direct Message on instagram @MakeDollarsAndSense, or feel free to send me an e-mail/text to the information on my Home Page. I truly appreciate constructive criticism and opposing views, so bring em on!

P.S. New blog posts coming your way every Monday!

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