5 of the Best Ways to Invest $5,000

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Updated on Friday, February 15, 2019

Saving money can be difficult for everyone. Between student loans, buying a home, or starting a family, it’s an accomplishment to save a sizable amount of money at all. Once you have some cash saved up, you may wonder what the next step is. Many financial professionals would recommend investing your spare money to help you reach your goals.

If you’re not sure where to get started investing your $5,000, take a look at some of your options below. Although we’re not presenting every single investment option on the market, many of these are a good place for investors to get started.

Best ways to invest $5,000

When you decide to start investing, remember that there are many options. The best option for you will vary based on your particular financial situation. If you’re not sure which investment path is right for you, then consider talking to a financial advisor before taking the first step.

1. Use a robo-advisor

A robo-advisor is an automated investment platform that operates online. Instead of choosing where each and every dollar is allocated, you just need to answer a few questions from the robo-advisor. Once you enter your information, the platform will automatically build a portfolio that matches your investment style and goals. For example, if you’re a young person interested in saving for retirement, your portfolio may be more aggressive than an older investor who will need to access their money sooner.

The biggest benefits of using a robo-advisor are that they typically offer lower fees than other brokerage accounts and instant portfolio diversification with even a small amount of investment capital.

Some drawbacks to consider about robo-advisors include a lack of personalized services that a human advisor might offer. In some cases, you may not have any access to a human advisor, which might be a problem when you have specific investing questions.

When you are just starting to invest, a robo-advisor may be a good choice. If you are comfortable with growing your investments slowly over time, then a robo-advisor is capable of handling this for you. As your investment portfolio grows, you may want to look into an investment advisor to help create a more personalized plan to meet your goals.

To get started with a robo-advisor, compare the fees of several options before you choose one. Consider your options carefully and choose a robo-advisor that seems best suited to your investment needs.

2. Consider micro-investing

Micro-investing is a way to start investing without having to save up to a minimum account balance. Some brokerage accounts require several hundred dollars as a minimum investment, but that isn’t realistic for everyone. Instead, you can use micro-investing to get started.

Micro-investing apps such as Acorns allow you to invest your spare change. Typically, you link up your debit and credit cards to the app. Each time you make a purchase, the app will round up your purchase to the next dollar and invest the change.

For instance, if you bought dinner for $20.25, the micro-investing app would round up your purchase to $21 and invest 75 cents. Although that seems like an incredibly small amount, your investments can add up over time. The best part is that your budget will barely feel the squeeze of this investment method.

3. Save for your retirement

Retirement is an expensive part of life that will be here sooner than you think. If you plan to stop working in your later years, then you need to start planning as early as possible in order to capitalize on the benefits of compounding interest.

The first place to start your retirement investment is through your employer’s 401(k) plan. Check to see if your employer offers a plan that’s worth maximizing; some employers even offer matching funds, which is essentially extra money for your golden years.

Other types of retirement accounts that you may want to consider are traditional IRAs and Roth IRAs. Both of these accounts have annual contribution limits set by the Internal Revenue Service (IRS). Although each of these accounts have different rules, both are very commonly used retirement accounts that are suitable for new investors.

4. Open a high-interest savings account

Many investment accounts can leave your money inaccessible for a certain period of time. A high-interest savings account could help solve that problem. Your money will grow slowly, but you would have access to the cash at any time.

If you’re concerned about not having quick access to your cash, then this is a good option. The interest rates on these accounts are typically lower than investing your money in the market. However, there is significantly less risk involved as well. You will need to determine what kind of investment risks you are willing to take before choosing this route.

A high-interest savings account is an especially good option for anyone that has not built an emergency fund. Life happens, and you may need quick access to cash. Before opening a high-interest savings account, take a look at all of your available options to ensure you are getting the best rate possible.

5. Put your money into a CD

A certificate of deposit (CD) is a savings account that will allow you to earn interest on the money you deposit into it. Although CDs typically pay more interest than your average bank account, there is a trade-off. You will need to leave your money in the account for a specified amount of time.

For example, if you put your money into a two-year CD, you will be expected to leave that money alone for two years. If you take your money out too soon, then you will have to pay an early withdrawal fee.

Typically, the longer you agree to leave your money in the account, the more interest you earn. Think carefully before locking your money into a CD — it’s a good way to earn interest but it can backfire if you are forced to make an early withdrawal.

To get started with a CD, find the best rate for your money before signing up.

Bottom line

You have many great options when it comes to getting started with investing. It can be difficult to take the first step, but many agree that it is an important component of a better financial future.

One reason why investing can seem difficult to beginners is that they aren’t sure where they want to go with it. Consider your short- and long-term goals and be realistic about the amount of risk you are willing to take with your investments before your portfolio starts to grow.

Want more investment ideas? See some top options for investing $10,000.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.