How to invest $10,000: Top 11 ways to allocate it right now

If you’ve reached the point where you have at least $10K, you should have already begun investing and if not then it’s time to start. But if you’ve never done it before, what’s the best way to invest $10,000?

First things first: you need to determine what your goal is.

In other words, you need to decide what end result you want before you can decide the best way to invest $10K, similar to typing your destination on maps before you start moving.

For example, if your goal is to buy a home or get married in two years, you probably shouldn’t invest at all. Instead, you should keep it safe in a high-yield savings account. Investing requires a bigger horizon.

But if your goal is to retire early as part of FIRE or fund your five-year-old’s college education, then you may want to invest all (or at least some) of it. That way compound interest can work its magic.

Aiming to invest slightly more? See the 9 ways on how to invest $20,000.

Here are Money Under 30’s top 11 recommendations for how to invest $10,000.

1. Build up your emergency fund

If you don’t have an emergency fund, it’s the first thing you should probably do with your $10,000 investment.

You never know what will happen — job loss, medical bills, etc. — so it’s smart to stash away at least three to six months’ worth of expenses. That way you can draw on it if and when you need.

No, an emergency fund isn’t the greatest investment. But think about the alternative if you ran into an unforeseen circumstance, like a job loss. How would you cover yourself and your family until you have an income again? This is definitely where I’d start if I didn’t already have something stashed away.

While I wouldn’t consider this an investment either, keeping your $10k in one of the top high-yield savings accounts is a great choice if you need to use it within the next two years — like, say to cover an emergency, get married, upgrade your car, or buy a house.

It’s also a great temporary solution if you’re still sorting out your longer-term strategy.

The process is quite simple. Just open an online savings account, deposit your cash, and let it sit until you have a plan or need to spend it.

Sometimes the best investment isn’t an investment at all. In this case, I mean paying off your debt. If you think about it, by paying off high-interest debt, you’re making money by not having to pay interest.

Imagine you have $10,000 in debt at a 15% interest rate. Using Money Under 30’s handy loan payoff calculator, let’s say you pay $250 per month. This would take you almost five years to pay off in total, and you’d have paid close to $4,000 in interest charges.

Yikes.

So instead, if you put your $10,000 toward the debt, you’d be saving almost $4,000 over the next five years. To me, that’s one heck of an ROI and even something Mark Cuban and Warren Buffet agree on.

Okay, the previous tips are good and all. But what if you actually want to invest $10k? Ya know, like in the stock market?

The best way to do this is with mutual funds or exchange-traded funds (ETFs). Both help you diversify across a bunch of different assets, so you don’t have all your eggs in one basket.

Here’s a quick rundown of mutual funds versus ETFs:

• A mutual fund is a large pool of investments managed by a professional. Most require at least $3,000 to get started and can have high load fees, which are sales charges that can range from 1% to 3% of your investment.
• An ETF is similar to a mutual fund but it trades on an exchange just like a regular stock. They also tend to have lower fees and minimum requirements than mutual funds, making them ideal for new investors.

MU30 Tip: Most ETFs are index-based, meaning they’re constructed to match an underlying index. One common index is the S&P 500. It represents stock in the 500 largest publicly traded corporations in the U.S. So if you buy an S&P 500 ETF, you’re investing in the broad U.S.-based market.

Where to buy mutual funds and ETFs

The best place to buy mutual funds and ETFs is with a robo-advisor or online broker.

A robo-advisor is an online investing platform that uses algorithms to automatically build and manage your portfolio. And because they’re automated, robo-advisors tend to have lower fees than traditional financial advisors.

There are tons of great robo-advisors, some that recommend as the best robo-advisors, out there but my two favorites are Acorns and Wealthfront. Both have no account minimums, so you can start investing with $10k (or even less!).

If you’d rather go the DIY route, you can also open an account with an online broker like Robinhood, which offers commission-free trades and plenty of investment options to help you build a diversified portfolio.

» MORE: Best brokerage accounts for beginners

There are almost no guarantees in life (except death and taxes, of course). So when you think about something like a 401(k) match from your company, it’s not only a guaranteed return on an investment, but it’s FREE money.

Yep. When you put money into your 401(k), some companies will add extra funds on your behalf — just as a workplace perk.

For example, say your employer offers a 100% match on up to 6% of your salary. If you earn $50,000 per year and you contribute 6% of your salary ($3,000) to your 401(k) plan, your employer would then add an extra $3,000 on the house.

There’s just one catch, though…

Because 401(k) contributions are taken out of your paycheck, you can’t just transfer your $10k over there. You’ve gotta do a little workaround first. Here’s how:

1. Log into your 401(k) account.
2. Temporarily increase your contribution amount, so more of your paycheck gets funneled into your 401(k).
3. Supplement the temporary gap in your paycheck with the $10k you have on hand.
4. Once you’ve contributed as much as you’d like to your 401(k), knock your contribution back down to its original percent.
5. Now your paychecks will go back to normal.

An IRA is another great way to invest $10k. It’s like a 401(k), only you fund it yourself.

There are two main types of IRAs: Roth and traditional.

• A Roth IRA allows your earnings to grow tax-free and you’ll be able to take withdrawals in retirement without paying any income tax on the money.
• A Traditional IRA, on the other hand, gives you tax deductions for your contributions in the current tax year but you’ll pay income taxes when you withdraw the money.

Since you have $10,000 to invest, it will be more than enough money to max out a single IRA (plus you’ll have a bit left over for a second one for a spouse!).

Which option you choose is up to you, but an easy way to determine if you should open a traditional or Roth IRA is where you think your tax rate will be in retirement.

• If you think your tax rate will be higher in retirement, generally a Roth IRA is a better choice, since your withdrawals will be tax-free.
• On the other hand, if your tax rate is expected to be lower in retirement, a Traditional IRA might be better — since you can take advantage of tax deductions now.

If you have a high-deductible health insurance plan, odds are you’ve been offered a Health Savings Account (HSA). This is a separate account you can independently fund with pre-tax dollars and use for qualifying medical expenses.

But there’s a secret about the HSA: it makes an amazing retirement account. That’s right. An HSA is like an IRA on steroids.

Whatever money you don’t use, you can roll over from year to year. Eventually, you can withdraw from it in retirement — completely tax-free. You just have to be 65 to qualify.

Like a 401(k), though, you can’t just deposit a lump sum. It has to come out of your paycheck, so you’ll need to use the trick I shared above to get the funds into your account. And with $10,000, you can meet the max allowed.

Another way to invest $10k is to open a 529 plan — which is basically a Roth IRA for your kid’s college tuition. It has most of the same tax benefits, like tax-free growth and withdrawals, but the money has to be used for qualified education costs.

If you have any urge to pay for your child’s college education, this is hands-down the best way to save for those expenses, in my opinion. I just recommend taking care of your own retirement first, though.

It also makes sense to shop around for a good 529 plan, as some states will give you credits or discounts, or offer special perks (like the ability for family members to chip in).

If you’re looking for a super-safe investment that still pays a respectable rate of return, I suggest taking a look at the incredibly unsexy U.S. Treasuries.

Yes. They’re very boring and kind of a pain to buy, but they provide a solid rate of return if:

• You’re looking for a safe place to store your cash.
• You’re okay with keeping your money locked up in an investment for a while (similar to a CD).

U.S. Treasuries are government debt. There are four different types you can buy:

1. Treasury bills (you might hear it as T-Bills) tend to be your shortest-term investment. Most T-Bills have maturities from one to 12 months, and interest is paid at maturity.
2. Treasury Notes pay interest every six months but have maturities of two, three, five, seven, or 10 years.
3. Treasury Bonds also pay interest every six months but have maturities of 20 or 30 years (yeesh!).
4. TIPS (Treasury Inflation-Protected Securities) also pay interest every six months and have maturities of 5, 10, and 30 years. What’s cool about TIPS is that the principal balance gets adjusted by the CPI (Consumer Price Index), which means the value of your security will keep up with inflation.

If you want to use your $10k investment (or part of it) on treasuries, you can see current rates and buy U.S. Treasuries through Treasury Direct.

Another great way to invest $10k is through real estate investment trusts, REITs, or similar options. This is an excellent choice if you’re interested in real estate investing but don’t have the capital or experience to buy individual property.

REITs are mutual funds that invest in a portfolio of real estate properties. They’re typically commercial properties, including retail space, office buildings, large apartment complexes, hotels, hospitals, warehouse space, and other property types.

You buy a REIT similar to how you’d buy a stock. And one major benefit is that they pay generous dividends. In fact, they’re required by law to pay out 90% or more of their net income in dividends to their shareholders. The returns on REITs can be impressive, averaging 11.8% per year over certain periods. There are now even real estate investment sites and apps.

The final way you could invest $10,000 is through peer-to-peer lending. P2P lending sites match borrowers who need a loan with lenders looking to invest. One benefit is the ability to earn much better rates of return than you might with a traditional investment in stocks or bonds.

As an investor with $10,000, you could fund multiple P2P loans at a variety of risk levels. With most P2P lenders, you can start with a low dollar amount, such as $25. This helps you stay diverse so you don’t dump all $10k into one loan and run the risk of it defaulting.

This process excludes banks entirely, which leads to not only better terms and conditions for borrowers, but also better rates of return for investors.

You’ll find a bunch of options, particularly on this list of best peer-to-peer lending sites, but the two most well-known companies are Prosper and Lending Club.

There are so many different ways to invest $10k. And the coolest part is, you don’t have to choose just one. Feel free to mix it up and split your $10k between several different options on this list — like, say an emergency fund and ETFs — depending on your goals.