With 40k available to invest, you have many potential options to put your money to work. The key is finding the right mix of investments tailored to your goals, time horizon, and risk tolerance. Though investing carries some risk, a smart diversified portfolio can provide long-term growth and stability. This article examines some of the best places to invest 40k to grow your wealth.
allocate across stock index funds for long-term growth potential
Stock index funds like VTI and VOO that track the whole U.S. stock market are a foundational investment. Historically, stocks have delivered the best returns over long periods of time. Aim to put at least 50-70% of your investable assets in stocks. At a young age, allocating even 80% to stocks is reasonable for their growth potential. Stock funds are diversified and less volatile than owning individual stocks. Investing consistently, adding more on market dips, and holding long term is the key to success.
consider adding international stock funds to diversify
Adding international stock funds like VXUS provides valuable geographic diversification. Foreign markets perform differently than U.S. stocks in any given year, reducing overall volatility. International funds expand your opportunity set. Emerging markets in particular can offer higher long-term return potential. Aim to allocate 10-30% of your stock portfolio to international.
complement stocks with low-risk bonds for stability
Bonds play an anchoring role in a portfolio, providing stability when stocks decline. High quality bond funds like BND pay steady income and hold up better in stock downturns. Shorter-term bonds like BSV see less volatility. Limit bond allocation to around 20-40% at younger ages, increasing toward retirement. More conservative investors may favor a 50/50 stock/bond split.
consider adding real estate exposure for diversification
Real estate can be a smart addition for diversification benefits. Real Estate Investment Trusts (REITs) like VNQ provide liquid, low-cost access. Rental property can also be attractive in the right markets. Real estate generally rises with inflation and moves independently from stocks. A 5-20% real estate allocation is reasonable for most. Those with direct property can skew even higher.
max out retirement accounts first for tax savings
Before taxable investing, be sure to fully fund tax-advantaged retirement accounts like 401ks and IRAs. The tax savings turbocharge returns over time. For IRAs, you can contribute up to $6,000 annually ($7,000 if over 50). 401k contribution limits are $20,500 ($27,000 over 50). If your employer offers a 401k match, striving to max that out is likely your best investment move.
With 40k to invest, allocating across stocks, bonds, real estate, and retirement accounts can create a balanced, high-return portfolio tailored to your goals. Maintaining an appropriate asset allocation as you add more money over time is key to long-term investment success.