How to Invest $20k? | 5 Best Ways to Grow Your Money

Having $20k in savings is a commendable milestone. However, if you want to see that money grow, you’ll need a thorough long-term investment strategy.

In this guide, you will find ideas for how to invest $20k, the pros and cons of those approaches, what to consider before you start investing, as well as more conservative options for saving toward retirement.

What kind of investor are you?

Before you determine how to invest that $20k, answer these questions:

• What is my investing goal? Is it to save for an upcoming expense, such as a car or a down payment for a house, or are you saving for retirement? This is important because a short-term goal will require a different approach to a long-term goal; 
• What is my risk tolerance? Investing is inherently risky, and your risk tolerance will determine your asset allocation;
• How much do I want to be involved? Decide which investing approach suits you best: active or passive investing. If you focus on the long term and aren’t just looking for short-term gains, both techniques can be lucrative. However, we urge beginners to focus on passive investing strategies rather than trying to beat the market. Additionally, if you’re new to investing, consider getting help from a financial advisor. 

Ultimately, your age, risk tolerance, investment time horizon, and financial goals all factor into your investment style. And understanding who you are as an investor can help you adjust your method as you age and your financial goals change.

Best ways to invest $20k

Whether from a sudden windfall, inheritance, or good old-fashioned saving, you have a spare $20k burning a hole in your pocket. Your next step is figuring out how to put this cash to work. And while this might not seem like a life-changing sum of money, if invested appropriately over time, it could grow into a sizeable nest egg. 

Various options are available to you. But ultimately, the best way to invest $20k is to choose the financial instrument (or several) that meets your specific needs to help you reach your future financial goals. 

Below you will find our pick for the five best ways to invest $20k:

1. Stock market;
2. Index funds and ETFs;
3. Real estate — REITs;
4. Retirement savings;
5. Cryptocurrencies.

Now, let’s really dive in!

---

1. Stock market

In this section: How to invest $20k in the stock market?

Investment type: Long-term growth

Risk Level: Varies

Broker to consider: Regulated, industry-leading low-cost trading platform eToro.

Disciplined investing in the stock market over decades is generally the best way to build long-term wealth. And though returns can vary from year to year, if investors reinvest their profits, they may even see compounding gains, which only grow more handsome as time passes.

For instance, the S&P 500 brought a 26.89% return in 2021 during the post-COVID recovery. And even though the market index was down a whopping -19.44% in 2022, it’s still averaging 10.21% since its inception in 1957.

So, once you know what industry, sector, or company you want to invest in, you can shop for an investing platform. For the hands-on types, this typically means opening an online broker account, such as eToro or Interactive Brokers. Alternatively, for those who require more assistance, investing through a robo-advisor, as well as help from a financial planner or investment advisor for stock recommendations, might be a wise choice.

Pros and cons of investing in the stock market

2. Index funds and ETFs

In this section: How to invest $20k in index funds and ETFs?

Investment type: Long-term growth

Risk Level: Varies

Broker to consider: Regulated, secure platform Interactive Brokers.

Passive investing is a long-term investment strategy for building wealth in which investors buy and hold a diversified portfolio of financial instruments with minimal active trading in the market. 

Index investing is the most common form of passive investing. In this buy-and-hold strategy, investors purchase exchange-traded funds (ETFs) or mutual funds that track major market benchmarks and hold them over a long time horizon. The objective is to reproduce the financial index performance overall, to match, not beat, the market. 

The three most broadly tracked indexes in the United States are:

• The S&P 500;
• Dow Jones Industrial Average;
• Nasdaq Composite. 

Pros and cons of investing in index funds and ETFs

3. Real estate – REITs

In this section: How to invest $20k in real estate through REITs?

Investment type: Long-term growth and diversification

Risk Level: Medium

Broker to consider Regulated comprehensive multi-asset trading platform Interactive Brokers.

In addition to the stock market, you might also want to invest in real estate. Though $20k might not be enough for a down payment for an investment property, you can still get exposure to real estate by investing in REITs. 

REITs are companies that own, operate, or finance income-generating real estate. REITs (as well as REIT mutual funds and REIT ETFs) are publicly traded and can be bought or sold via a brokerage account, making them the most liquid real estate investment available. 

Pros and cons of investing in REITs

4. Retirement savings

In this section: How to invest $20k for retirement?

Investment type: Long-term growth and retirement

Risk Level: Low

Bolstering your retirement savings is an excellent use of $20,000. Indeed, a retirement account can slowly build your nest egg and support your long-term financial needs. 

Here are some options for parking your money safely for decent (albeit modest compared to riskier instruments such as stocks) returns in retirement:

Individual retirement accounts (IRAs)

An IRA is your go-to choice if you don’t have a retirement account with your employer. It’s also a great alternative if you want different investment offerings than those offered by your workplace retirement plan. When you open an IRA, you can invest in various asset classes, including stocks, bonds, ETFs, and mutual funds. 

There are two types of IRAs: a traditional IRA, which gives you an upfront tax deduction, and a Roth IRA, which provides tax-free retirement withdrawals. In 2023, you can contribute $6,500 (or $7,500 for those over age 50) per year into an IRA, leaving you with an additional $2,500 to $3,500 to invest elsewhere. 

Pros and cons of IRAs

Certificate of deposit (CD) laddering

A certificate of deposit is an FDIC-insured savings account that holds a fixed sum of money for a set period in exchange for interest, with longer periods generally having higher rates. 

A CD ladder is a strategy that takes advantage of the various interest rates offered for different time periods and is created by allocating the same amount of money across CDs with varying maturity dates. Buying multiple CDs at different maturities can be a good choice for risk-averse investors who want to take advantage of the long-term CDs’ higher interest rates while maintaining the flexibility of short-term CDs.

Pros and cons of CD laddering 

Retirement annuities

An annuity is a financial product offered through insurance companies that provide a fixed stream of payments to an individual, typically in the form of monthly income in retirement. Because invested funds are illiquid as well as subject to withdrawal penalties, they are not recommended for younger individuals or those with liquidity needs. 

Pros and cons of annuities

Treasury Bonds

Treasury bonds (T-bonds) are debt instruments in which investors lend the US government the purchase amount of the bond in exchange for an interest rate during the bond’s life as well as the face value of the bond at maturity. All treasury securities have zero default risk since they are guaranteed by the full faith and credit of the United States government. Remember, treasury yields can fluctuate depending on the market and economic conditions. 

Pros and cons of treasury bonds

5. Cryptocurrencies 

In this section: How to invest $20k in cryptocurrencies?

Investment type: Alternative investment and diversification

Risk Level: High

Broker to consider Regulated multi-asset investing platform eToro.

Investors with a greater risk appetite can consider investing in cryptocurrencies. Crypto investing can take many shapes, from buying the underlying cryptocurrency, such as Bitcoin (BTC) or Ethereum (ETH), to investing in companies in the cryptocurrency or blockchain space, such as Coinbase (NASDAQ: COIN) or Roblox (NYSE: RBLX). 

However, keep in mind that cryptocurrencies are considered high-risk investments. As relatively new and untested financial instruments, the prices of crypto assets, even the most established ones, are much more volatile than those of more conservative instruments like stocks. And while volatility can create opportunities for jaw-dropping returns, the reality is, most investors end up empty-handed. 

More concerningly, the price of cryptocurrencies could also be affected by future regulatory shifts, in the worst case, even rendering crypto assets worthless. As a result, if you do decide to invest, it’s essential to keep an eye on any new developments in the cryptocurrency space that could affect your holdings. 

In addition, because of the abundance of choice within the crypto market, with thousands of crypto assets in circulation, it’s paramount that you research any digital coin before buying it. Finally, given the riskiness of cryptocurrency as an asset class, it’s imperative only to invest money you can afford to lose.

Pros and cons of investing in cryptocurrencies

How to safely invest $20k — things to consider 

Though you may be eager to begin investing your $20k, it’s crucial to assess your financial standing as a whole and ensure the following factors are satisfied first:

• High-interest debt is paid off: Ensure you have repaid any high-interest debt before investing. That includes credit card debt and debt from other loans, such as payday loans. For instance, the average credit card interest rate in 2022 was 19.42%, significantly higher than the average annual stock market return. Low-interest debts such as mortgages or auto loans, on the other hand, do not need to be repaid before you start investing;
• You have an emergency fund: Establish an emergency fund in case of unexpected expenses, such as medical bills, car repairs, or job loss, before you start investing. A good rule of thumb for most people is to put aside six months of living expenses on a deposit account where there’s no risk of losing principal, like a savings or money market account. Importantly, having that cash available will also mitigate the need to withdraw money from your portfolio, use high-interest credit cards, or take out loans;
• Space out your investments: Instead of investing all of your money once, try utilizing a dollar-cost averaging (DCA) strategy, in which the total amount to be invested is divided into periodic purchases of a target asset over a period of time. Spreading out your investment this way can lower the overall impact of price volatility and decrease the average cost per share; 
• Don’t put all your eggs in one basket: To spread your risk and protect yourself from large losses, allocate investments across various financial instruments, industries, and other categories. In addition, a diversified asset allocation is essential because it has a massive impact on whether you will meet your financial goal. For example, if you don’t add adequate risk to your portfolio, your investments may not earn a significant enough return to meet your goal; 
• Stay wary of fraud: Scams are getting increasingly sophisticated. Fraudsters are often particularly articulate and charming as well as financially knowledgeable, with credible websites, testimonials, and documents that are difficult to distinguish from the real deal. But as always, if it sounds too good to be true, it probably is. That’s why researching and understanding an investment is so important before you give someone your money. Start by looking for the company’s financial statements on the Securities and Exchange Commission’s (SEC’s) EDGAR filing system. Check out the Financial Conduct Authority (FCA) list of warning signs here, as well as the SEC’s list of questions to ask about your investments here. 

Conclusion

Whether you should save, pay off outstanding debt, or invest $20k is a personal decision and depends on your unique financial situation and goals. As your circumstances change, adjust your investment strategy but stay committed to building wealth for the long haul. 

Ultimately, investing requires guts as well as discipline, and no matter which financial vehicles you use to grow your nest egg, your investment performance will see both gains and losses over the years. But remain persistent and focused on the future, and you may soon find yourself looking up how to invest $100k. 

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

FAQs about how to invest $20k

What to do with $20k?

With $20k, you can invest in individual stocks, ETFs and mutual funds, REITs, and cryptocurrencies, as well as toward your retirement (401k, CDs, IRAs, government bonds, etc.). 

How to invest $20k?

The best way to invest $20k is to spread it across various asset classes, including stocks, index funds, and REITs, as well as more conservative options such as bonds or CDs. 

Where to invest $20k?

Where you invest your $20k will depend on your age, risk tolerance, investment time horizon, and financial goals. However, a well-diversified portfolio will combine several financial instruments with various risk levels. 

How to invest $20k for passive income?

There are several options for investing $20k for passive income, including index fund investing, dividend investing, crypto staking, and investing in REITs. 

How to invest $20k in real estate?

The best and most accessible way to invest $20k in real estate is to invest in REITs, which provide investors with ready-diversified real estate portfolios, hefty dividend yields, and high levels of liquidity (particularly compared to physical real estate investments).