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

Whether you worked hard and saved what you could or you inherited some funds, you have $20,000 and are ready to invest. The best way to maximize your money, however, largely depends on your age and where you are in life, in addition to factors like your target retirement age, salary and tax bracket.

In this article, we break down some of the best investment choices you can make with $20,000 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 just fresh out of college. The good news is that this is the best time to invest money, as 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 is often a good option for people who are early in their careers and in a lower tax bracket now than they will likely be when they retire.

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 anticipate being in when you retire, the Roth IRA may be an especially attractive option.

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, like 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 like a home or new vehicle. If you have debt, you’ll want to prioritize your payments by focusing on high-interest debt first, 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 that 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 home stretch to retirement, but you still have time to build a solid nest egg so you can enjoy your golden 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 accounts. 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 assess whether 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 as 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, if you’ve not had the opportunity to do so already. You could put that $20,000 towards your own house, but you could also invest it towards a rental property or real estate investment trusts (REITs), both of which 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 can spread out your wealth.

What to consider before you start investing

For some, it’s tempting to jump right in and get started investing right away, while others may not even know where to begin. Whichever group you land in, here are a few things that will start your $20,000 investing experience off on the right foot.

• Do you want to enlist the help of a professional or take the DIY route? Some people may not necessarily need to find a financial advisor to manage their assets — especially if they’re just starting out and don’t have enough to meet investment minimums or pay fees. Investors in this situation can likely benefit from setting up a robo-advisor account, which are mobile-friendly and typically have lower fees than traditional financial advisors. While investors with more complex financial situations can still benefit from online platforms, having a professional to help optimize your portfolio may prove beneficial and offer a greater level of customization. A financial advisor also can help you financially navigate any changes that come up with big life events, like getting married or having kids.
• What does your current financial situation look like? What are your goals? Before investing, it’s wise to first take a good look at your financial situation, compare that against the financial goals you want to meet and determine how your money would best serve you. For example, if one of your goals is to pay off your car loan, perhaps your $20,000 would be better spent paying off that loan before you start investing. Creating a concrete financial plan will help you assess both your current and future finances and keep you on track.
• What is your timeline and risk tolerance level? Your portfolio’s asset allocation should largely be based on your timeline and how much risk you’re willing to take on with your investments. The younger you are, the more risk you can afford to take on in your portfolio through investments like stocks. But once you get closer to retirement, you’ll want to pack your portfolio with safer assets since you have less time to recover in the event of a market downturn.

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.