3 Best Ways To Invest $5,000 To Build Wealth, Depending on Your Time Horizon
Investing is one of the best ways to build wealth, no matter how much or how little you want to invest. There are some nuances when it comes to knowing where to put your money, though. One of the factors to keep in mind is what you intend to do with that money and when.
“If you have $5,000 to invest, the optimal investment vehicle depends on your time horizon,” said Thomas Brock, CFA, CPA and expert financial reviewer for Annuity.org.
Here’s how to best invest $5,000 for the short and long term, as well as for when you don’t know when you will need the money.
Best Short-Term Investment: High-Yield Savings Account
“If you intend to access your funds within the next one to two years, put the money in a high-yield savings account,” Brock said. “These accounts are federally insured, and the most competitive issuers currently offer yields in the 4.50% to 5.25% range. The rate can change at any time, but the liquidity offered is top-notch.”
Putting your funds in a high-yield savings account will protect your money from market swings.
“If you intend to access your funds within the next one to two years, you cannot afford to be exposed to a high degree of marketplace volatility,” Brock said. “You need a stable-value instrument that offers a competitive rate of interest that keeps pace with inflation.”
Best Medium- to Long-Term Investment: Equity Fund
“If you intend to keep the funds invested for longer than two years, put them in a diversified equity fund that gives you growth potential,” Brock said. “A low-cost way to gain access to global equity markets is Vanguard’s total world stock exchange-traded fund (VT). Over the past 10 years, VT has generated an annualized return of 7.59%, which includes a dividend yield of about 2.02%.
“If you prefer to focus solely on the U.S. stock market, Vanguard’s VTI fund is a good option,” he continued. “Over the past 10 years, it has generated an annualized return of 11.13%, which includes a dividend yield of 1.49%.”
Best Investment for an Unknown Time Horizon: Mix and Match
“If your situation is not clear-cut, consider allocating 20% to 40% of your money to a high-yield savings account and 80% to 60% to a long-term, growth-oriented investment, such as VT or VTI,” Brock said.
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