How to Invest $20,000 When You’re in Your 20s, 30s or 40s

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Updated on Wednesday, January 16, 2019

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You worked hard and saved what you could, or perhaps you inherited some funds. Whatever the case, you have $20,000 and are ready to invest. Good for you! Now, the question is how to make that money work for you.

The truth is there’s no one-size-fits-all investment strategy to maximize your money. Just because you and your neighbor make the same investment choices doesn’t mean they’ll bring about the same returns.

To make the best investment choices, you must consider obvious things like your salary and tax bracket but also your age. The number of years between you and retirement is a major factor that’s easy to overlook. Here, we break down some of the best investment choices you can make in three significant decades of your life: your 20s, 30s and 40s.

Best ways to invest $20,000 if you’re in your 20s

In your 20s, you’re likely just getting started in your career. Perhaps you’re fresh out of college. The good news is this is the best time to invest money because you can assume more risk. You have many years between you and retirement, and there’s a ton of time for your money to grow.

Here are four smart ways to invest while you’re in your 20s.

1. Fully match your employer-offered retirement plan

Before you do anything else, check out the details of your employer’s retirement plan (if it offers one). If it does offer to match funds, you should contribute at least that amount. That’s money you don’t want to miss out on.

As you look at the 401(k) plan your employer offers, make sure to consider the Roth option if it’s available. A Roth 401(k) allows you to invest after-tax dollars, which can grow tax-free over the years until you withdraw them in retirement. This often is a good option for people who are early in their careers and in a lower tax bracket now than they will be when they retire.

Contribution limit for 401(k)s in 2019: $19,000 per year

2. Open an IRA or a Roth IRA

An individual retirement account (IRA) may be a good option in addition to — or instead of — your employer’s 401(k). It operates much like a 401(k), allowing you to invest funds that can grow tax-deferred (traditional) or tax-free (Roth) over the years. Again, if you’re in a lower tax bracket now than you will be when you retire, the Roth IRA may be an especially attractive option.

Contribution limit for IRAs in 2019: $6,000 per year

3. Automate your investments

If you’re not investing the entire $20K at once (or even if you are but want to keep investing more), you may want to set up automatic contributions to an investment account.

One option to consider is a micro-investing app that allows you to invest small amounts of money on a regular basis. It could be as little as a few cents on every purchase. Some apps automatically invest the spare change from all your purchases. For example, if you purchase a cup of coffee for $3.29, that cost would round up to the next dollar, contributing 71 cents to your account. It may not seem like much, but small amounts can add up to significant investments over the years.

4. Start an emergency fund

If you don’t already have an emergency fund, you should consider starting one. In general, experts suggest gathering an estimate of your monthly living expenses and aiming to save three to six times that amount.

Best ways to invest $20,000 if you’re in your 30s

In your 30s, you’ve likely made some headway in your career. While you may have increased your income, you also may have had children, so you’ll want to make sure you’re planning for their future as well as your own.

Here are four smart ways to invest while you’re in your 30s.

1. Diversify your investments

If you’re like most people, you still have a couple of decades between you and retirement, but the clock is ticking. Consider opening a brokerage account where an expert can help you choose from various funds, stocks and bonds. If you already have a few years of investing under your belt, it may be a good time to revisit your investments and reallocate as needed.

2. Increase your retirement contributions

Now is the time to ramp up your investments in your retirement accounts. That could mean maxing out your 401(k) contributions and/or opening another retirement account, such as an IRA. The more you stash away now, the more comfortable you’ll be in retirement.

3. Pay off your high-interest debt

For some, taking on debt is unavoidable, especially for big-ticket items such as a home or new vehicle. If you have debt, you’ll want to prioritize your payments by focusing on high-interest debt first and then shifting your focus to low-interest debt.

It also may be a good time to revisit your emergency savings fund. If your living expenses have increased over the years, make sure your fund has increased as well so you have enough saved to cover three to six months of expenses.

4. Open a 529 if you have kids

If you have children, it’s time to start planning for their college education if you haven’t already. A 529 account is a simple and effective option to cover many education costs. It allows you to invest after-tax dollars that then grow tax-free. As long as you use the funds for approved costs, including tuition (for any eligible school starting with elementary school), books, and room and board, you can take tax-free withdrawals.

Best ways to invest $20,000 if you’re in your 40s

You’re almost in the homestretch to retirement, but you still have time to build a solid nest egg so you can enjoy those years.

Here are four smart ways to invest while you’re in your 40s.

1. Max out your retirement savings

If you haven’t already, max out the amount you can contribute to all your retirement account. If you’re already maxing out your retirement accounts, consider attacking any remaining debt. That’s the last thing you’ll want hanging over your head in retirement.

2. Reallocate your assets

If you selected your contributions years ago and haven’t revisited them since, it’s time to take another look. Make sure you’re maximizing your contributions and managing risk and that the choices you made years ago still make sense for your life today. Consider hiring a financial advisor to help you with this process and create a plan that will last through retirement.

3. Invest $20K in yourself

Are you happy with your career? It’s not too late to head back to school to start a new one or get an advanced degree that will give your career and income a boost. It also may be a good time to invest in yourself in other ways, such remodeling your bathroom or turning your hobby into a real business. Another way you can invest in yourself is by putting money toward real estate. Some day, that $20,000 investment could turn into a steady stream of passive income.

4. Diversify your investments

As they say, you shouldn’t put your eggs all in one basket, and you shouldn’t put all your money in one investment account either (especially at this stage of the game). You’ll want to consider all available options, including IRAs, health savings accounts and other tools that spread out your wealth.

Bottom line

No matter how old you are, investing money in your future is a wise move, but some moves are wiser than others. If you’re stuck, seek professional advice from a financial planner or financial advisor.

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