If you’ve got $10,000 to invest, you’re off to a great start. $10,000 is much more than many of the world’s richest investors started out with, including Warren Buffett.
Still, you can’t just blindly throw your $10,000 into the stock market and expect to do well without knowing how to invest correctly.
If you would like to turn your great start to long-term success, here are a few of the best ways to invest $10,000.
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1. Max Out an IRA
IRAs offer a lot of advantage to investors because they are tax-deferred on the earnings you receive.
This means that if you put $5,000 in an IRA and that money grows into $40,000 by the time you retire, you only have to pay taxes on your initial $5,000 investment rather than the $40,000 you ended up with. Right out of the gate, this helps you get more bang for your buck.
IRAs, however, have a maximum amount you are allowed to invest each year. In 2017, this maximum is $5,500 for individuals under the age of 50 and $6,500 for individuals 50 and older.
If you’ve got $10,000 to invest, though, maxing out an IRA should be your first move. The freedom and tax benefits that IRAs offer are really unparalleled compared to any other investment vehicle.
2. Max Out a 401(k)
If your employer offers a 401(k) matching program, you should certainly take full advantage of it by contributing the maximum amount that they are willing to match. If you don’t, you’re essentially leaving free money on the table, and it’s pretty easy to have success investing when someone else is automatically doubling your money every time you contribute.
Once you’ve contributed the maximum amount your employer is willing to match, though, you’re probably better off using an investment vehicle other than your 401(k) for the rest of your $10,000.
401(k)s don’t provide a lot of freedom as to where you can invest your money and instead require you to broadly diversify it in a limited selection of mutual funds. Spreading your money across the entire market in this way isn’t so much investing in companies as it is speculating that the market will go up over time.
While the market does usually trend upwards over long periods of time, you’ll see much higher returns if you carefully choose individual companies to invest in based on their value and projected success.
3. Split Your $10,000 Investment in Individual Stocks
If you still have investment money left over after you’ve maxed out an IRA and contributed as much as your employer is willing to match into a 401(k), you can still continue investing by investing in individual stocks.
This is where Rule #1 investing comes in. By following the guidelines of Rule #1 investing, you’ll be able to pinpoint great companies, identify when they go on sale, and purchase them at a price that allows you to make upwards of 15% returns each year. If you are broadly diversifying your money across the entire market, these types of returns are almost unheard of. With individual stocks, though, they are entirely attainable.
If you are patient, educated, and rational in your investing, choosing individual stocks is by far the best way to quickly grow your wealth.
4. Invest $10,000 in Yourself
By far, the best investment you can make is the one you make in yourself. The better you equip yourself with the knowledge and resources that you need to be successful as an investor, the better your returns will be.
After you’ve invested quite a bit of your $10,000 by maxing out an IRA, contributing to a 401(k), and choosing a few individual stocks that you believe in, take the money you have left over and use it to learn as much as you possibly can about investing.
Really, the only thing standing between you and the ability to pick great companies each and every time is the right education.
If you’d like to see how you stack up against experienced investors, take my Investing IQ Quiz!
P.S. If you want to learn more before investing $10k, here are a few resources you might appreciate.
- Looking for the best way to invest 500 dollars?
- Check out our favorite ideas for small investments.
- Want to learn more from the great Warren Buffett?
- Don’t miss his famous investing quotes.
- Trying to double your money every 7 years with compound interest?
Editor’s Note: This post was updated for 2022 with additional investing advice.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.