How to Invest Your First $10,000

Congratulations! If you’re reading this because you have your first $10,000 to invest, you are already far ahead of the average American, who has a mere $4,830 in their savings account (according to a study by MagnifyMoney). 

Give yourself a pat on the back for being above average, but know you are only just getting started on the path of building your net worth. The good news is the $10,000 can go a long way if you know what to do with it. Here are a few suggestions:

Scratch the Entreprenurial Itch

If you think you need a fancy corporate office and a big wad of cash to get your dream business started, think again. Many people have become wealthy by starting a side hustle with a modest initial investment.

Shark Tank investor Barbara Corcoran famously turned a $1,000 loan into a $66 million real estate empire. RXBar was started with $10,000 in savings and grew until it was eventually sold to Kellogg’s for $660 million. Tuft and Needle started with $6,000 in seed money, and now boasts more than $100 million in sales. Amazon and Apple both started out in garages.

Technology has made the world a smaller place, and social media offers efficient marketing channels that previous generations of successful entrepreneurs didn’t have. Dare to dream big, and great things are possible!

man dropping coin into jar

Invest in Stocks

Unlike previous generations, you don’t need a stockbroker to invest in stocks. You can purchase them yourself! Many online brokerages have recently eliminated fees, so not only is buying stocks easy, it’s also inexpensive.

Before buying any stocks, develop a plan based on your expected level of activity and risk tolerance. Decide how active you plan on being. If you are interested in short-term transactions, you may want to be active with trades. If you prefer a long-term approach, seek out investments that you’ll buy and hold.

Stocks are not only an effective way to build your net worth with an average annual return of six percent, but they’re also a fun way to own a small piece of a company that you believe in. Apple, Chipotle, Target and Disney are all well-known brands that have provided large returns this year.

If you aren’t risk tolerant or recognize your emotions may impact your decision making, then consider turning to an index mutual fund or exchange-traded funds, which bundle many stocks together. The S&P 500 index is also a low-maintenance option and has posted an average annual return of nearly 10 percent since 1928.

Open an IRA

If you have a long-term goal for your investment, consider opening an Individual Retirement account (IRA), especially if you work for a company that matches a percentage of your contributions. Failing to do so is like turning down free money.

You can also invest in an IRA through an online brokerage or financial advisor. Consider investing the maximum amount possible to lay the groundwork for your retirement savings and to lower your taxable income.

Many people choose a Roth IRA over a traditional IRA because you won’t be taxed on a Roth IRA when you withdraw money during your retirement. There are pros and cons to both that are for another discussion, but either type of IRA will help you build a significant nest egg. 

Delete Your Debt

While you may not think of paying off your high-interest credit card debt as an investment, doing so can set you up for future financial success. Carrying debt on an expense instead of an appreciating asset is bad for your financial health.

Many credit cards have interest percentages in the teens and even higher, which is essentially like a negative investment against your money. Eliminating this debt not only clears the negative line item from your ledger, but also clears your stress.

Paying off debt will improve your debt-to-income ratio, which increases your credit score and scores you more attractive interest rates in the future. The money that was going toward your credit card bill each month can be redirected to something else that positively impacts your net worth.

Choosing an investment strategy can be challenging, but getting started is the hardest part. Each day that your money isn’t invested is a wasted opportunity to build your net worth!

Which strategy you choose will vary depending on many factors including age, risk tolerance, investment time frame, and personal circumstances. If you find yourself with your first $10,000 to invest, these are just a few of many options for getting started early and maximizing the impact on your financial future.