Investing can be a tough process. Thousands of assets ranging from stocks and bonds to cryptocurrencies and real estate are available for investors. The toughest of them all is creating a brand new business as 9 out of 10 startups are bankrupt after 5 years of their creation.
To start off on a successful investment journey, any rational investor must consider the purpose and scope of the investment first, and allocate the funds accordingly. For investors who wish to build up retirement savings, a passively managed basket of investments could be the best option, pension funds and wealth management funds do offer such services. However, returns from such funds may not be too great.
Some investors have more appetite for risk and are willing to actively manage their own investments. Growth stocks, cryptocurrencies, and other assets with solid growth potential and high volatility can be a good option for such investors. In this guide, we’ll give you ideas on how to invest $10k profitably. Furthermore, we’ll help you better understand the world of investing and the risks and rewards associated with it.
Things to consider when investing $10,000
- Beating inflation – The purchasing power of our currencies depreciates over time. In order to grow your wealth, the annual returns on your investments need to be higher than inflation figures.
- Investment objectives – What is the sufficient annual yield for your portfolio and what are the long-term goals? Every investor needs short-term, medium, and long-term goals. People succeed in life because they know where they’re going.
- Commissions and other charges related to investing – Investing and actively managing your portfolio will be related to various fees and will take a good portion of your time. It’s important to prepare accordingly.
- Risk management is the key to success – once your investment capital is gone, it’s very difficult to start over. Every professional investor understands the risks associated with trading and tries to minimize them by making informed decisions.
Active vs Passive investing
There are two types of investors: passive and active. Passive investors purchase assets that have profit potential in the long run and do not require daily supervision. Active investors are more involved in managing their portfolios and spend a significant amount of time and energy on them. Let’s discuss each method separately with a $10k investment amount.
Portfolio A – actively managed growth
For investors seeking to grow their $10000 investment as fast as possible, long-term investment vehicles are not entirely feasible.
Higher investment returns come with a higher degree of risk, which means picking more volatile assets that have a higher upside potential.
While risky assets may seem daunting at first, good risk management and keeping track of market news can turn active investing into a highly profitable endeavor. Certain stocks of companies that are at the early stages of business development, coupled with a basket of major cryptocurrencies purchased at a discount, can make for explosive growth in the long run.
Economic downturns affect riskier assets the hardest. Volatility increases and assets depreciate. However, active investors can still benefit from falling markets by short selling.
Growth stocks
Growth stocks refer to stocks of startups and disruptive tech companies that have a lot of potential for obtaining significant market share. Many of the issuing companies of these stocks often do not even have any actual revenues at the time of listing on the exchange.
The phases of product development are characterized by very high volatility and any new relevant development can either send the stock price soaring or tank it altogether. When investing in growth stocks, it is important to get an unbiased view. You should never fall in love with certain investments. Investors need clear heads to make calculated decisions.
When analyzing growth stocks, investors are more interested in the growth rate of these companies, rather than their actual revenue and net income figures individually. Much of the growth potential is often already priced into the stock price and it is essential to conduct a thorough valuation to make a calculated investment.
Small-cap stocks
In general Small-cap stocks have market capitalization between $300 million and $2 Billion. Smaller stocks might not have the same growth potential as one would expect, but they can be highly volatile and an attractive alternative for investors adjusting their positions frequently.
Certain catalysts, such as quarterly reports and managerial changes can make these stocks grow or tank sharply.
It is important to look through the financial reports of the issuing companies to gauge their financial standing and decide whether they deserve a spot in your portfolio.
Cryptocurrencies
The buzz surrounding cryptocurrencies and blockchain technology has caught the attention of millions of investors worldwide. While these assets are still relatively unregulated and highly volatile, they can be a great source of short-term gains. Hundreds of cryptocurrencies are available on the market and deciding which ones to invest in can be challenging.
The most actively traded currencies are the best bet for mid-to-long-term investors. Cryptocurrencies such as Bitcoin and Ethereum have shown amazing growth over the past few years and are now trading at significant discounts from their peak prices.
Cryptocurrency performance is largely swayed by the rest of the markets, as they are regarded as alternative assets to invest in during uncertainty in the equity and bond markets.
Worsening economic sentiment can be quickly identified in the crypto markets, as they attract more traders than long-term investors, which triggers sell-offs during periods of high uncertainty.
Options
Adding long-term options into the mix can be a good way of generating higher returns. Stock options carry much higher risk than shares on their own and this risk can be greatly rewarded by successful options plays. A relatively modest amount of options can give exposure to a much larger position in a stock. Options trades do not give ownership of the asset to the investor and represent ‘bets’ on the direction of the stock’s price.
Investors who identify stocks that they deem to have high growth potential can accumulate much larger gains than they would have by buying and selling regular stocks.
To successfully integrate options into your portfolio, consider their strike prices and expiration dates to match them with your scope of investment and performance objectives.
Options also offer leverage, which can boost the buying power of the position.
Portfolio B – passively managed annual payouts
Investors who give years to their investments to payout are generally interested in more stability than in growth speed. Investors understand very well that risks are highly correlated with rewards. In investing, the higher the risk, the higher the rewards, and vice versa. Passive investors have something highly valuable and that’s time.
When you have time, you can reinvest your profits and increase your wealth by compounding. Compounding is the best way to keep the risk levels low in percentage points and increase rewards by increasing position sizes in sheer numbers.
Keep in mind that blue chip stocks such as Apple, Microsoft, IBM, and other members of the S&P 500 typically pay good dividends and steadily grow in the long run. If even higher yields are preferable, real estate investment trusts or REITs offer almost double the dividend yields as blue chip stocks do. For assets that hardly fluctuate in value and offer much higher returns than the two equity instruments mentioned above, bonds might be the best choice. Corporate bonds typically offer much higher yields than Treasury securities. To choose the most stable bonds, consider the financial position of the issuing company to see whether their business operation might come under threat in the foreseeable future.
Blue chip stocks
Stocks that represent large corporations that have been active for decades and have a well-established business model are referred to as blue chip stocks.
A lot of such stocks are members of the S&P 500 index and are less volatile than their counterparts.
Stocks such as Apple, McDonald’s, Coca-Cola, etc. offer stable growth and dividend payouts to investors, which require very little oversight or active management.
The dividends can also be reinvested in exchange for more shares, which can help increase the position if so desired.
REITs
Buying real estate is not feasible for $10,000. However, investing in a real estate trust can be rewarding. REITs are traded like stocks on the stock exchange and invest in commercial and residential real estate.
As opposed to stocks, REITs are obligated to distribute most of their earnings as dividends, hence they have higher dividend yields than stocks.
REIT yields may vary based on the types of real estate they invest in and the managerial decisions of the trustees.
Bonds
Bonds are debt securities that are issued to raise capital. Bonds may have fixed or floating interest rates and differ in seniority.
The fixed annual payout is very convenient for passive investors and requires no additional input from them.
While certain market factors can influence yields, bonds issued by blue chip stocks are very stable and have very low risks of default.
Mutual funds & ETFs
When picking individual stocks is not an option, investors can choose a specific index or sector of the economy and invest in a fund that tracks them.
Mutual funds and ETFs can be great long-term investments that vary in risk and asset composition.
Funds that track an index do not require active management and perform in line with the market.
Some funds that invest with a predefined performance plan are actively managed and can be much more volatile than index funds.
Exiting an ETF is much easier than exiting a mutual fund. ETFs are traded like stocks and can be bought and sold at will.
Portfolio A vs Portfolio B
To compare the theoretical returns of Portfolio A and B, let’s look at some sample allocations of the $10,000 principal to see how they would have performed if invested on January 1, 2022.
Since there is no feasible way to predict the performance of the assets individually, let’s look at the performance of the indices that track their respective markets.
Portfolio A
| Asset | Current price | Price upon investment | Performance to date |
| Bitwise 10 Crypto Index Fund (BITW) | $11.56 | $38.21 | -69.7% |
| iShares Russell 2000 ETF (IWM) | $181.63 | $225.32 | -19.4% |
| ARK Innovation ETF (ARKK) | $44.71 | $97.00 | -54% |
The performance of some of the most followed indices tracking growth stocks and cryptocurrencies suggests that such assets do not fare well during inflationary periods. This, however, does not mean that they will not perform well in the future, but depending on the scope of the investor, such short-term results might become a dealbreaker.
Portfolio B
| Asset | Current Price | Price upon investment | Performance to date |
| SPDR S&P 500 ETF Trust | $390.12 | $477.71 | -18.3% |
| American Tower Corporation (NYSE: AMT) | $245.06 | $286.38 | -14.4% |
| Vanguard Total Corporate Bond ETF (VTC) | $75.39 | $89.95 | -16.2% |
The performance of Portfolio B was more resilient towards shifting market conditions and also included dividend-paying securities, such as blue chip stocks and REITs, alongside bonds that provide a steady stream of income for the investor.
Investing $10,000 in Portfolio B would have led to much lower losses in the short term.
Main takeaways from how to invest $10,000
Choosing what to invest in can be a difficult task for most investors. Looking through the asset classes can give hints as to what these investments are geared toward. Certain stocks that pay dividends, real estate trusts, index funds, and bonds have proven to be more resilient towards market uncertainty than growth stocks and cryptocurrencies. The reasoning behind this is the value proposition of well-established businesses, as opposed to the uncertain future that most disruptive companies face. It must be noted, however, that the performance of these investments can vary greatly depending on the date and price at which the investment was made.
Financial markets are known for periods of boom and bust. The idea is simple. If you are a long-term investor looking for ways to invest 10k, investing 10000 USD should be done when markets are down and the assets are cheap. However, it is possible to make money by investing in periods of falling markets too. Active traders are shorting financial instruments when markets are falling and purchase them when prices start to reverse. The best way to invest 10k is to learn how to make a steady income with small risks and compound profits.
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FAQs on how to invest $10,000
Is 10,000 a good investment amount?
Yes. To make a lot of money, you need a lot of money, however, 10,000 USD is a good amount to start. The key to success is learning how to grow your balance steadily, without sharp drawdowns and without high risks. That will help you find investors or reinvest your profits and increase wealth by compounding. Compounding takes time but it’s a tested and true method of wealth creation. 10,000 USD is a good amount to start as it can be compounded over time, and in case of failure, your life is not going to get destroyed.
How much can my 10k grow in 10 years?
If the portfolio performs in line with stock market returns (S&P 500 index), the annual returns would roughly amount to 10% – turning the initial $10,000 into just under $26,000 in 10 years.
What stocks to buy for $10,000?
Depending on your investment objectives, you can invest $10,000 in blue chip stocks and ETFs for steady long-term growth and dividend payouts, or you can pick growth stocks that are more volatile in the short term but have a high upside in the long run.
What is the best way to spend 10K?
The best way to spend money is to always invest in the future. Make sure you invest in assets and not in liabilities. Assets make you more money. Liabilities cost you money. Assets are businesses, stocks, collector’s pieces, etc that increase in value over time or produce income. Liabilities are expensive cars, rental fees, utilities, etc.