Having 40k in savings provides a good opportunity to start investing for long-term growth. For investing beginners with 40k, recommended options include index funds, real estate crowdfunding, high-yield savings accounts, certificates of deposit and robo-advisors. Diversification across asset classes can help mitigate risks. It’s important to assess risk tolerance, time horizon and financial goals when deciding how to invest 40k.
Index funds offer broad market exposure with low fees
Index funds provide a low-cost way to invest in a broad basket of stocks or bonds. For example, an S&P 500 index fund tracks the 500 largest U.S. companies. With 40k, one could allocate a portion to domestic and international stock index funds. This provides diversification and growth potential over time. Look for index funds with low expense ratios under 0.10%. Leading providers include Vanguard, Fidelity, Schwab and iShares.
Real estate crowdfunding provides income potential
Real estate crowdfunding platforms like Fundrise allow investing in private real estate deals with minimums as low as $500. This can provide portfolio diversification and income via dividends. Look for quality sponsors with a track record in markets positioned for growth. Monitor liquidity limitations, fees and risks.
High-yield savings yields more than traditional accounts
Online banks tend to offer higher interest rates on savings accounts than brick-and-mortar banks – generally over 2% vs. 0.01-0.05%. For idle cash that may be needed in the short-term, high-yield accounts provide a bit more return with the same FDIC protections and liquidity as traditional accounts.
CDs lock in fixed returns for set periods
Certificates of deposit (CDs) guarantee a fixed rate of return for terms like 3 months, 6 months or 1 year. The longer the term, the higher the rate. Minimum deposits are often $1,000. CDs provide modest returns with no risk of loss of principal. Laddering CDs can ensure access to some funds while still earning higher rates.
Robo-advisors offer automated investing
Robo-advisory services like Betterment and Wealthfront automate portfolio management, from asset allocation to rebalancing. For an annual fee of 0.25-0.50% of assets, algorithms handle the investing based on inputs like risk tolerance. This can be a set-it-and-forget option for passive investors who don’t want to self-manage.
With 40k available to invest, having a game plan tailored to your goals and risk appetite is key. A diversified portfolio spanning stocks, bonds and cash can grow wealth while mitigating risk.