Investing is a great tool at your disposal to start building your wealth. No matter how large or small the amount, the earlier you start investing the better! Given the world has changed a lot over the last year, it seems like a good time to recap on some investing avenues. I’ll go through less expensive investment vehicles since these are more realistic and I am more likely to invest in them myself. Lastly, I’ll be starting with less risky options and moving to more risky options. So, let’s get right into how I’d invest $10,000 with my first investment option…
Option #1 | Tax Advantaged Accounts
IRA’s, 401k’s, HSA’s and many more. These accounts help you build wealth for retirement. I’ll quickly go through the three I mentioned but there are plenty of other tax advantaged accounts that can help you build your wealth.
IRA’s – These accounts stand for Individual Retirement Account. Anyone can open one in addition to having a 401k or a pension plan. In essence, you can deposit up to $6,000 per year into these accounts and use those funds to invest in stocks. The reason these accounts are tax advantaged is because, depending on which account you choose, your funds grow tax free or tax deferred. The catch is you won’t be able to withdraw your funds until 59 1/2 without penalty. To keep things short, here’s a quick summary of the two accounts:
ROTH IRA: Funds deposited are from after-tax money, funds grow tax-free, withdraw what you deposited without penalty, and penalty free withdrawal at 59 1/2. Learn more about ROTH IRAs
Traditional IRA: Funds deposited are from pre-tax money and can be deducted from your income, funds grow tax-deferred meaning you’ll pay taxes when you withdraw, penalty free withdrawal at 59 1/2, and required withdrawals beginning at 72.
I personally chose the ROTH IRA. The ROTH has your funds grow tax free unless you withdraw early. This means that you can buy and sell stocks without having to worry about reporting capital gains tax. Lastly, when you reach retirement age your entire portfolio is completely tax free!
Option #2 | Pay off Debt
This option is less glamorous than other options out there. In fact, paying off debt as an investment choice is hardly ever talked about, I feel. Anyways, paying off bad debt is absolutely a smart investment. Credit card loans, student loans, car loans, etc… are all debts you should pay off as soon as you can. These debts will only increase and cost you more money if you put them off. I argue that paying off these kinds of debts is more important than investing in for your future. Being debt free allows you to be much more financially mobile so I would really pay off any debts that I have before investing in other options.
Option #3 | Crypto
As of right now, June 18th 2021, the crypto market is not doing so hot right now. To many this seems like a bad time to buy into crypto as the market is declining. However, all I see is opportunity. Crypto is a riskier market than stocks but historically crypto generally increases in value over time. Now could be a great time to buy at prices we may not see again. I wouldn’t throw all my money into crypto because again, it’s very risky, and there is still potential for crypto to go down further. Check out another recent crypto crash from May
Option #4 | Business
The last option I’ll talk about is investing in a business. I am not talking about start-ups. I am saying that maybe you should consider starting a business! Starting a business can build wealth unbelievably quick. Plus you get to be your own boss, make your own hours, and do what you’re passionate about. Of course, business is not all sunshine and roses. Starting a business is the most risky option out of all the ones I’ve mentioned so far. Most businesses fail within the first year. This option has the most risk but also the most reward and offers more than just monetary value to your future. In my opinion, if you have an idea for a business or just know something you really want to do, I’d consider investing in starting a business.