Whether by luck or hard work, if you find yourself with an extra $50K there are a lot of things you could do with it. You could splash out on an epic shopping spree or take a much-needed vacation with the family. This is all well and good, but ideally, you should consider using that money or at least a large part of it to secure your future. You have a range of options. For one, you can play it safe and opt to put the money into savings.
But, what investment is best?
Some people don’t have the time to spend researching and managing investment opportunities. We have a tried and tested option for you: passive real estate investing. Did you know you can earn double-digit returns by investing in real estate indirectly?
Make the current $50,000 in your possession a seed to much greater wealth with Edna Keep’s 90 Days to 5K Mastermind Program. There, you will learn how to earn $5,000 per month through rental properties using just a fraction of your existing wealth.
When done right, investments can be an even bigger source of income than your daily 9-to-5 job. As Warren Buffet once said: “Never depend on a single income. Make an investment to create a second source.”
But let’s not get ahead of ourselves. Let’s give you a brief breakdown of how to invest large amounts of money wisely.
What Exactly Does Investing Mean?
There is a lot of ambiguity around the word investing and people speak of investing in education, investing in your health, and even investing in a car.
However in the financial world, investing refers to buying a product with the intention of earning a profit, income, or both.
Below are the three basic categories of investment.
Ownership Investments: Equities and Stocks
With these types of investments, the investor has full or partial ownership of property that generates earnings. Generally, the investment property is expected to increase in value over time and is suitable for medium to long-term investors. The most common types of ownership investments are stocks and mutual funds.
Lending Investments: Fixed Income Investments and Bonds
This category of investment is where you act as a lender in exchange for future interest payments. They are usually low-return, low-risk investments and are a safer option used to balance out ownership investments.
Cash Equivalents: Money Market Funds
Cash equivalents are ideal for short-term investments as they are highly liquid and can be easily converted into cash. They are low risk but also have the lowest potential returns compared to other types of investments.
In addition to these broad categories, there are other alternative investments that include real estate, foreign exchanges, and collectables.
Ways to Prepare Before You Start Investing
Whatever your goals, investing is a personal choice, and the investment vehicle you choose will be influenced by your circumstances.
Let’s take a look at some key things you need to consider before making an investment decision.
Pay Off Your Outstanding Debts
Although $50K might not seem like a lot of money to some, it can go a long way to clearing your debts.
Set aside part of your $50,000 to pay off any high-interest debts you have. This will increase your credit score and provide you with the financial freedom to finance future investments.
The debts you should consider repaying with some of your $50K include:
- Student loan debt
- Credit card debt
- Car loan
Maintain a Healthy Emergency Fund
Life happens, and sometimes, it’s not pleasant or planned for. You might be in an accident, have a family emergency, or be unable to work.
When these disruptions occur and you experience financial trouble, you need to have an emergency fund to manage unexpected costs while avoiding excessive debts.
According to financial advisors, it is prudent to have an emergency fund of three to six months worth of living expenses.
Save money in a high yield savings account or money market accounts that can be quickly converted to cash. Make sure the bank is also insured by the Federal Reserve to keep your money safe.
Choose Between Active or Passive Investing
Active and passive investing are the two main ways to invest and each has a strong following in the investment world.
Active investments are usually handled by the investor or a financial advisor. These investments are quite flexible as you can choose the investment mix according to your personal preferences.
They are however time-consuming and will require you to research and manage various investment vehicles.
Alternatively, you could pay an expert investment manager to take care of your portfolio.
If you prefer to use a buy-and-hold strategy, passive investments are ideal for you.
These are lo