The Best Way To Invest $20k

Picture this: you’ve just received or saved $20,000 but are unsure what to do with it. You could spend it on a luxurious vacation or a new car, or you could invest it wisely to set yourself up for financial stability in the future. So, let’s find out the best way to invest $20k!

In this article, we’ll discuss ideas for different investment strategies that suit varying financial goals, investment time horizons, and risk tolerance levels.

You will better understand the various investment options available when you’re trying to figure out what to do with 20k. And you’ll also discover their benefits, risks, and how to approach the decision-making process.

​​So, without further ado, let’s explore what to do with $20k!

Short-term strategies to invest $20k

Short-term investment strategies are designed for those who are looking to invest for a period of up to two years.

They are a great option if you want to save for a specific goal.

For example, if you’re saving for a house down payment, a wedding, or a vacation.

Short-term investment strategies are also great for building your emergency fund—as long as they aren’t too risky.

Common examples of short-term investments include:

• High-yield saving accounts
• Money market funds
• Peer-to-peer lending

High-yield savings accounts

If you’re looking for a safe and straightforward way to invest $20k, a high-yield savings account may be the way to go.

A high-yield savings account is like a regular one.

However, it has a higher interest rate, allowing you to earn more money over time.

But unlike other investment options, there is no risk of losing money due to market fluctuations.

However, you should make sure your high-yield savings accounts are FDIC-insured. The federal government will protect your cash up to $250,000 for each depositor, per ownership category per insured bank.

This is why high-yield savings accounts are a popular choice regarding short-term investment strategies. I personally keep some of my short term savings in this account type.

They are a low-risk, low-stress way to earn interest on your money without tying it up for an extended period.

Money market funds

Regarding short-term investments, money market funds are an attractive option for those who want to earn a higher return on their money than they could with a traditional savings account.

A money market fund is a sort of mutual fund that invests in short-term and low-risk securities. It could include assets like government bonds, certificates of deposit, and commercial paper.

Another advantage of money market funds is that you can usually access your funds quickly and easily. However, this usually isn’t the case for longer-term investment strategies.

So, if you’re looking for a low-risk, low-volatility investment that offers a stable return, a money market fund may be the best way to invest 20k to meet your financial goals.

Peer-to-peer lending

When it comes to short-term investment strategies, peer-to-peer (P2P) lending is an innovative option. It offers a unique combination of high returns and low risk.

P2P lending connects borrowers directly to investors without an intermediary financial institution.

In other words, YOU become the “bank.”

By cutting out the middleman, P2P lending allows investors to earn higher returns than they would with traditional savings accounts.

Plus, you choose who you invest with, making it easier to put your money where your values are. That said, it is still very important to do your research when it comes to P2P lending platforms to determine if this is the best way to invest 20k for you.

Mid-term investment strategies to invest $20k

Mid-term goals and investment strategies are suitable for those looking for the best way to invest $20k for two to five years.

It’s a good strategy for saving for a child’s education or starting a business.

Common examples of mid-term investments include:

• CDs
• Robo-advisors
• Index funds
• Mutual funds
• Exchange-traded funds
• REITs

CDs (Certificates of Deposit)

CDs, or Certificates of Deposits, offer a safe, low-risk investment option with a guaranteed return for your mid-term financial goals.

A CD is a deposit account that typically offers a set interest rate for a specific term, such as six months, one year, or two years.

As with high-yield savings accounts, one of the primary advantages of CDs is that they are FDIC-insured.

CDs also offer higher interest rates than you’d find with traditional savings accounts. It makes them a good option for those looking to earn more money on their investment.

The bank also guarantees interest earned, regardless of inflation volatility.

Which is good for those looking for a guaranteed investment return over a specific period. You can also check out other ideas for the best compound interest investments.

Robo-advisors

With user-friendly platforms, diversified investment portfolios, and 24/7 access to your investments, robo-advisors provide a convenient and cost-effective way to grow a $20k investment.

Unlike traditional brokerages, a robo-advisor is a digital investing option that provides automated investment management services.

It uses complex algorithms to create and manage a personalized investment portfolio based on your short and long term financial goals, risk tolerance, and investment timeline.

Plus, because robo-advisors eliminate the need for a traditional financial advisor (who will typically charge high fees for their services), you can access professional investment management services at a fraction of the cost.

As an added perk, robo-advisors are designed to make a well-balanced portfolio of investments across different asset classes, which can help mitigate risks and increase returns.

Index funds

With diverse investment options and high transparency, index funds are a reliable and proven way to invest $20k for mid-term purposes.

The best index funds are an aggregation of stocks, bonds, and other securities. They track an index, depending on the index fund, such as the S&P 500 index.

When investing in index funds, you can access various investment options. It can help you spread your investment risk and maximize returns.

Plus, because they’re passively managed, index funds are known to have significantly lower fees than mutual funds. Still, index funds can offer very strong investment returns over time.

Moreover, the prevalence of index funds is high. Whether you’re looking for a conservative, low-risk investment option or a more aggressive investment strategy, there’s likely a fund out there that meets your needs and can be the best way to invest 20k.

Mutual funds

Unlike index funds, which are passively managed, most mutual funds are actively managed by a dedicated mutual fund manager.

If you learn how to start investing with mutual funds, your cash will be pooled with other investors’ money and then invested in different assets, like stocks and bonds. To get started, you’ll need to check out brokerage accounts and open one.

Mutual funds are one option for figuring out what to do with 20k if you want to work with a mutual fund manager. But bear in mind that mutual funds come with much higher fees than index funds or ETFs. In the end, these fees can cut into your returns over time.

Exchange Traded Funds (ETFs)

With their low fees, flexibility, ease of access, transparency, and potential for long-term capital appreciation, ETFs can provide a reliable investment strategy that aligns with your financial goals.

In some ways, ETFs are similar to mutual funds. ETFs and mutual funds are a collection of securities that can provide diversification and risk management benefits.

However, ETFs trade on an exchange like a stock, allowing you to buy and sell them throughout the trading day at market prices.

Compared to actively managed mutual funds (which require professional management and research), ETFs are typically passively managed. As a result, their management fees are much lower, allowing you to keep more of your returns.

Moreover, investing in a diversified portfolio of ETFs can minimize the risks associated with individual securities and market volatility, thus potentially achieving steady returns over the long term.

REITs (Real estate investment trusts)

If you want to invest $20k for mid-term purposes that provides regular income and capital appreciation (and is great for real estate beginners), investing in real estate investment trusts (REITs) could be a great option.

REITs own, operate, and/or finance income-producing real estate, such as shopping centers, office buildings, apartments, and hotels.

By investing in REITs, you can gain exposure to the real estate market without the hassle of buying and managing physical properties.

Importantly, when you invest in REITs, you also get to invest in various property types and geographic regions, allowing you to diversify your portfolio and minimize risk.

Best of all, REITs are required by law to give at least 90% of their taxable income to their shareholders as dividends, providing investors with a reliable source of income. So, if you’re looking to build a passive income stream, REITs might be the best way to invest 20k to meet your financial goals.

You can buy REIT ETFs directly in a brokerage account or use tools like Fundrise, an online investment platform designed to help individuals invest in real estate and venture capital without big fees.

Long-term strategies to invest $20k

Long-term investment strategies are the best way to invest $20k for five years or more. They are a great option if you’re looking to build long-term wealth, such as saving for retirement. The new contribution limits for 2024 for IRAs and 401ks are listed here, according to the IRS.

Common examples of long-term investments include:

• Retirement accounts
• Real estate

Traditional IRA

A traditional IRA allows individuals to contribute pre-tax dollars, which can lower their taxable income for that year.

Then, the money grows tax-deferred until withdrawal in retirement, when it is taxed at the individual’s tax rate. It can be advantageous because you’re more likely to be in a lower tax bracket when you’re a retiree than when you’re a working professional.

Roth IRA

Roth IRAs allow individuals to contribute after-tax dollars, meaning there is no contribution tax deduction.

However, the investment earnings grow tax-free, and withdrawals in retirement are also tax-free.

401(k) retirement account

This is an employer-sponsored retirement account where employees can add a portion of their pre-tax income.

Some employers may match a portion of their contributions with 401k matching. The money grows tax-deferred until withdrawal in retirement, where it is taxed as ordinary income.

Other types of retirement accounts include:

• Savings Incentive Match Plan for Employees (SIMPLE) IRA plans
• Simplified Employee Pension (SEP) plans
• Solo 401(k)s

Investing in retirement accounts is a wise choice for long-term financial planning.

Retirement accounts offer tax benefits, the power of compounding interest, a range of investment options, and the opportunity to plan for your future.

In addition, by learning how to start saving for retirement, individuals can build a comfortable nest egg that will last for decades, ensuring a financially secure retirement.

Real estate

Real estate offers the potential for appreciation in value, real estate passive income, a range of investment strategies, a hedge against inflation, and greater control over your investment.

It’s a tangible asset that has the potential to appreciate over time. Investing in a property allows you to watch your investment grow as the property increases in value.

Treating your real estate as a rental property could earn steady ongoing passive income. Alternatively, you could venture into flipping properties for a quick profit.

Another real estate investment strategy is to buy a home and hold it as an asset until the appreciation in value allows you to invest in a higher-value property. It can be a viable strategy since inflation drives up not only the cost of goods and services but also the value of real estate.

Other ideas to invest 20k? Think outside the box!

Hoping to get more creative with finding the best way to invest $20k?  If so, paying off debt or investing in education may be your route.

Let’s explore these ideas a little further.

Pay off credit card debt

When you carry debt, you’re essentially paying someone else for the privilege of borrowing their money. Unfortunately, that interest can really add up over time.

So, by using $20,000 to stop paying credit card debt, you can save yourself a significant amount of money in interest payments over the long run.

Paying off your debt can also improve your credit score, positively impacting your financial life.

With a higher credit score, you may qualify for lower interest rates on future loans, credit cards, and mortgages, saving you even more money in the long term.

And we’d be remiss if we didn’t note that paying off debt is the gift that keeps giving.

Why? When you pay off debt, you free up your cash, giving you more money to put towards other financial goals, such as investing, saving, or even treating yourself to something special.

Make student loan payments

Figuring out how student loans work is complicated. With interest adding up over the years, you often have to pay back a lot more than you originally realized.

If you have a lot of money due in student loans, this could be a great way to use that extra $20k!

Whether the $20k is enough to cover all or just part of your student loans, getting rid of or minimizing your monthly student loan payment will make managing your biweekly budget or monthly budget that much easier.

Invest in your education

With $20,000, you can pursue additional education, such as a college degree, trade school, or other specialized training.

Education can open up new doors and opportunities for your career and increase your earning potential over the long run. So, if you’re thinking about what to do with $20k, investing in your education today could mean limitless returns tomorrow.

Investing in education can also positively impact your personal growth and development. It can expand your horizons, challenge you to think differently and expose you to new ideas and perspectives. Ultimately, education can help you become a more well-rounded and fulfilled individual—professionally and personally.

Save for your kid’s education

If you have children, another great way to plan for the future is to start saving for your kids’ college education. Even if your children are still young, the earlier you start, the better!

One way to invest $20k for your kid’s college education is with a 529 plan. This special education savings plan offers certain tax advantages to help you save for qualified education expenses.

But be aware that you can only use the funds from a 529 plan for qualified education payments.

So before getting started, make sure you do your research to determine if a 529 plan is worth it for you and your family.

4 Key things to remember

Before jumping into the first strategy that catches your attention, I encourage you to reflect on your goals and personal circumstances.

It will help you find a strategy to start investing that aligns with your long-term objectives in life, minimizes risk, and maximizes returns.

To set the stage for picking an investment strategy, consider the following:

1. Set financial goals

What do you want to achieve with this money?

For example, some financial goals could be to save for retirement, buy a home, pay off debt, or invest for the future.

Once you have set your financial goals, you can explore the best investment options to help you achieve them.

2. Outline a time horizon

How long do you plan to hold onto your investment?

Is it a short-term savings goal (such as saving for a house) or a long-term goal (such as building a retirement nest egg)?

Your investment time horizon will influence the types of investments you choose.

3. Understand your risk tolerance

How much risk are you comfortable taking to earn higher returns?

Are you okay with the ups and downs of the stock market, or do you prefer more conservative investments with lower risk?

Understanding how risk averse you are and your risk tolerance can help you choose the right investment strategy for your needs.

4. Diversify your investments

Even if you think you’ve found the best way to invest $20k, you don’t want to put all your eggs in one basket!

Instead, consider diversifying your investments across various asset classes, such as stocks, bonds, real estate, and commodities.

It can help reduce your overall risk and potentially increase your returns over the long run.

Don’t forget to do your research

Once you determine a strategy that aligns with your answers to the questions above, you can research the options available within the specific investment strategy of your choosing. For more help, check out our list of the best investment websites you can leverage.

Here are some key questions to consider when researching potential investments:

What are the tax implications?

For example, take the time to consider: Will you be subject to capital gains taxes or other taxes on your investment returns?

Understanding the tax implications of your investment can help you make smarter decisions and maximize your after-tax returns.

How has the investment performed historically?

Now, it’s time to do a little research. Look at how the investment has performed over time. How does it compare to similar investments?

While historical performance is never guaranteed, it can be a valuable indicator of future potential returns.

How is the investment managed?

Who manages the investment? Importantly, what is their track record?

Do they have a clear investment strategy? Are they aligned with your financial goals?

Before deciding what to do with 20k, ensure you know what type of management your investment will have and who will manage it.

What are the company’s corporate values and social impact?

Does the company behind the investment clearly commit to social responsibility and sustainability? Do their values align with your own? Do they positively impact society and the environment?

Choosing investments supporting your values will help you protect your peace of mind and improve the world.

Are there investment fees?

What are the fees associated with the investment? How do they compare to similar investments?

Remember that high fees can reduce your overall profitability.

What do market trends and indicators look like?

What is the current state of the market?

In other words, understand the difference between a bear and bull market.

How does this impact the investment you’re considering? Are there any potential risks or opportunities you should be aware of?

As always, research all potential risks before you decide how to invest $20k.

Expert tip: Starting a business is a great way to invest 20k

If you’re trying to figure out what to do with 20k to make it grow, you could also consider using this money to start a business or a side hustle. If you’re not sure where to get started, there are a lot of different ideas for side hustles out there.

You can earn money blogging, or become a graphic designer. Maybe you’ll start a cleaning business or consider learning about freelance marketing.
While you may not want to pour ALL of your saved-up $20k into starting a side hustle or business, you may choose to use a portion of it.

For example, you can use part of your savings to pay for equipment or take courses on how to launch your business. If you’re looking for new income stream ideas, starting a business or even a side hustle could prove profitable in the long run.

What can I do with 20k to make more money?

If you want to use your 20k to start making even more money, one of the best things you can do is build passive income streams.

For example, you may try starting a side hustle, launch a business that can eventually run with minimal input from you, and/or invest in real estate, stocks, bonds, or other assets.

Is $20,000 a good amount to invest?

$20,000 is a great amount to get started investing! If you want to keep things simple, consider investing your $20k in a 3 fund portfolio, AKA the lazy portfolio. That said, you can learn how to start investing with just a little money.

What is the best thing to invest $20,000 in long term?

There is no single best investment for the long term. Rather, the best investment for your $20k will vary depending on your own financial goals and risk tolerance.

One popular option for many people is investing in real estate, dividend stocks, and/or bonds with a brokerage account.

What is the best way to invest 20k short term?

If you want to be able to easily access your investment in the short term (i.e., in less than five years), then you’ll want to consider highly liquid investments, such as high-yield savings accounts, CDs, ETFs, or money market funds, etc.

Above all, you’ll want to avoid non-liquid (or illiquid) assets, like estates, collectibles, or other intangible assets.

Articles related to investing

If you gained valuable investing knowledge from this article, check out these posts next!

• Should You Pay Off Student Loans Or Invest?
• The Difference Between Savings And Investment: Does It Matter?
• How To Grow Your Money: 7 “Must Do” Tips
• How To Start: Passive Real Estate Investing

The best way to invest $20k depends on you!

Investing $20,000 can be a smart way to set yourself up for financial stability in the future.

By taking the time to carefully consider your financial goals, investment time horizon, and risk-tolerance level, you can choose the investment strategy that suits you best—and it won’t be the same for everyone.

Whether you opt for stocks, bonds, real estate, or other investment vehicles, it’s essential to research, stay informed, and make thoughtful decisions that align with your personal core values and goals.

So, use the knowledge and tools you have learned here to make informed decisions about the best way to invest $20k. Above all, don’t forget: Starting early and staying committed to your goals is the key to wealth accumulation.