How to invest $5,000 in 2024

Investing can often feel like standing at a crossroads with numerous paths stretching out before you. Each path holds promise and peril, opportunities, and obstacles. If you find yourself holding a $5000 ticket to this financial expedition but feel a bit daunted by the amount of investment options, you’re in the right place. This article aims to guide you through the maze, offering clear, well-lit paths that align with your future financial goals and current standing. 

In this article, we’ll cover:

1. Taking care of immediate needs
2. Saving for short-term goals
3. Contribute to a 401(k) 
4. Contribute to a Roth IRA
5. Build a portfolio with a robo-advisor 
6. Invest in ETFs
7. Invest in your future-self 

1. Take care of immediate needs first

Best for: people with high-interest debt or who haven’t set up an emergency fund

Before sprinting down the investment track, it’s crucial to ensure you’re on solid footing. For many, this means addressing high-interest debt head-on. The rationale is simple yet compelling – the returns from paying off a debt with a 30% interest rate dwarf those from typical investments. 

Aim to eradicate these financial burdens as swiftly as possible. Simultaneously, consider establishing an emergency fund if you haven’t already, laying a safety net for unforeseen financial storms.

If you have no interest debt and already have a comfortable emergency fund that could float you for three to six months, congratulations, this is a huge accomplishment. Consider some of the investment options below.

2. Consider saving short-term goals

Best for: Those planning to use the money within one to  three years

Identify any short-term goals you anticipate within the next five years, like funding a dream vacation, saving for a wedding, or even saving for your next car. It’s strategic to separate these savings goals from your long-term investments to avoid derailing either goal.

Ideal vehicles for short-term savings include:

• High-yield savings accounts: A high yield savings account provides higher interest rates compared to traditional savings accounts, making them an ideal choice for storing funds that may need to be accessed on short notice.
• Money market accounts: A money market account offers the dual benefits of higher interest rates compared to savings accounts, along with the convenience of writing checks.
• Short-term CDs: Certificates of Deposit (CDs) are ideal for short-term goals, offering the opportunity to lock in your money for a period ranging from a few months to a few years. They provide secure, fixed-interest earnings, typically at rates higher than those of savings accounts.
• Short-term bonds or bond funds: Investing in bonds or bond mutual funds with short maturities is a relatively safe strategy for growing money to meet short-term needs with minimal risk.

Pros	Cons
Provides financial security for short-term needs or goals.	Limited growth potential compared to long-term investments.
Offers the opportunity to earn higher interest rates compared to traditional savings accounts.	May not keep up with inflation over time.
Can be used as a stepping stone towards long-term investments by building good saving habits.	Funds may not be easily accessible in case of emergencies.

Investor tip: Park your cash in short-term Treasurys if you think you will use it within a year.

3. Contribute to a 401(k) 

Best for: Those saving for retirement

A 401(k) is a retirement savings plan sponsored by an employer, designed to help employees save for their future retirement. In 2024, the current yearly contribution limit is $23,000 a year or $30,500 if you’re 50 or older. The contributions are usually made pre-tax from your paycheck, and some employers may also offer a match on your contributions.

If your employer offers a matching contribution to your 401(k) plan, it’s like getting extra money. You should aim to contribute at least enough to get the full match that your employer offers. Think of this as not just an investment in your retirement, but as an immediate return on your contributions. 

This extra money from your employer can help you significantly boost your retirement savings. So, taking full advantage of this benefit is a smart financial move. Keep in mind that 401(k) contributions are tax-deductible, meaning you’ll pay fewer taxes for the year while also saving for your future.

Pros	Cons
If offered, employer matching contributions help boost your retirement savings.	Limited investment options compared to other retirement accounts like IRAs or Roth IRAs.
Contributions are tax-deductible, leading to a lower tax bill for the year.	Early withdrawals may incur penalties and taxes.
Provides a convenient way to save for retirement through automatic payroll deductions.	Contributions may be subject to vesting periods, meaning you may not have full access to the employer match until a certain number of years of employment.

4. Contribute to a Roth IRA

Best for: Those who want tax-free income in retirement

If your employer doesn’t offer a 401(k) plan or if you’re self-employed, consider opening up and contributing to a Roth IRA. A Roth IRA s an individual retirement account that stands out for its tax-free growth and withdrawals in retirement. Contributions to a Roth IRA are made with post-tax dollars—money from your paycheck after income taxes have been deducted. As a result, the investments in your Roth IRA can grow tax-free.

This setup can be ideal if you expect your income to increase over time since you’ll be paying taxes at a lower rate now and can avoid higher taxes on your investment earnings later. The current yearly contribution limit for 2024 is $7,000 a year or $8,000 if you’re 50 or older. While $5,000 won’t max out your Roth contributions for the year, it certainly would be a significant contribution to your retirement goals.

Pros	Cons
Tax-free growth and withdrawals in retirement.	Contributions are not tax-deductible like traditional IRAs.
Flexibility compared to traditional IRAs, allowing for early withdrawals without penalties.	Income limits may restrict eligibility for high-income earners.
No mandatory distributions after a certain age, giving more control over when to withdraw funds.	Early withdrawals are limited and may incur taxes and penalties.

Investor tip: Know the tax implications of different retirement accounts. Investing into a traditional 401k or IRA can reduce your current taxes, which saves you money now, but in retirement, you’ll have to pay taxes on your withdrawals. Compare that to a Roth 401k or IRA, which won’t reduce your current taxes, but investments will grow tax free and you’ll save on taxes in the future. Doug Feldman, Chief Investment Officer at Stash

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5. Invest with a robo-advisor 

Best for: New investors wanting support or hands-off investors

For new investors learning how to start investing and those looking for a more hands-off approach to investing, robo-advisors offer a convenient and low-cost option. These automated investment services use algorithms to create and manage diversified portfolios based on your investment goals, risk tolerance, and time horizon (when you expect to need the money you’ve invested back). 

They typically charge lower fees compared to traditional financial advisors, making them an attractive option for those with smaller investment amounts like $5000.

Pros	Cons
Low fees compared to traditional financial advisors.	Lack of human advice and personalized guidance may not suit all investors.
Offer automated, hands-off investment management, making it ideal for beginners or busy individuals.	Limited control over investment decisions.
Utilize algorithms and diversification strategies to optimize portfolios based on your risk appetite and goals.	May not adjust to market changes as quickly as a traditional financial advisor might.

6. Invest in ETFs

Best for: Investors looking for diversification with each investment

An exchange-traded fund (ETF) is like a basket of different investments that follows a set list, giving investors a simple way to spread out their money. They can be bought and sold easily on the stock market and usually cost less in fees than mutual funds. ETFs offer investors a convenient and cost-effective way to diversify their portfolio by investing in a variety of stocks, bonds, or commodities.

Pros	Cons
Offers instant diversification by tracking an underlying index.	Limited ability to outperform the market due to passive investment approach.
Lower fees compared to mutual funds.	May have higher trading fees compared to traditional mutual funds.
Easy to buy and sell on exchanges, providing flexibility for investors.	ETFs may lack some of the benefits of actively managed investments.

Investor tip: Choose low-fee ETFs. It’s safer to invest in ETFs, or baskets of assets, than in any one asset.  Doug Feldman, Chief Investment Officer at Stash

7. Invest in your future-self

Best for: every single one of you

Perhaps the most impactful investment of all is the one made in yourself. While all of the options mentioned above should be investing in yourself, investing in yourself through education and personal development has numerous benefits. By attending career-enhancing workshops or pursuing further education, you can gain new knowledge and skills that can help you advance in your career or even switch to a more fulfilling one. Seeking guidance from mentors or hiring a career coach can also provide valuable insights and strategies for success. 

Additionally, investing in your mental and emotional well-being through therapy or self-care practices can improve your overall quality of life and make you a more resilient and confident individual. These investments in yourself not only lead to personal growth, but they can also have a significant impact on your future success and financial stability. 

Continuously improving and increasing your value makes you an attractive candidate for higher-paying job opportunities, promotions, and even entrepreneurship ventures. Ultimately, investing in yourself is an investment that yields invaluable returns for your future self.  So, never underestimate the power of investing in personal growth and development. As they say, the best investment you can make is in yourself. 

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FAQs about how to invest 5000 dollars 

Still have questions about how to invest $5000? Find answers below. 

Is $5,000 enough to start investing? 

Yes, you can start investing with $5,000. It might not seem like a lot, but compounding can make it grow over time. Keep adding to your investments and reinvest your earnings to see bigger gains. Make sure to research and spread your investments to reduce risk and increase potential profits. With patience and careful planning, your $5,000 can grow significantly through compounding. 

How can I double $5000 dollars? 

One way to potentially double $5,000 is by investing it in a 401(k) account, especially if your employer matches your contributions. For example, if you invest $5,000 and your employer offers to fully match at 100%, you could start with a total of $10,000 in your account. However, the actual growth of this investment depends on market performance, which can vary. There’s no guaranteed return, and it’s possible for the value of your investment to go up or down over time.

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