What are some ways to invest $10,000?

Whether you’ve won the lottery or received an inheritance, $10,000 is a significant amount of money. So, what should you do with it? Save it. Invest it. Pay down debt. Add value to existing assets… the answer will depend on your individual circumstances so it’s a good idea to get some advice first.

Getting started

With any financial decision, think about your goals and timeframe to make smarter choices when deciding where and how to invest.

If the idea of losing money, even a small amount, causes you sleepless nights, then you’re probably not the type of investor who will enjoy taking risks with their money. Or, if you’re likely to need access to money in the short term, it’s perhaps not sensible to put it into a fixed term account where you might be penalised for making a withdrawal.

Save your $10k

Savings accounts and term deposits

Good for short-term savings or emergency funds, many financial institutions offer savings accounts and term deposits. They’re typically a lower risk option and may offer promotional and/or higher interest rates if deposits are made regularly and/or withdrawals are restricted. Every household should have some funds they can call on immediately if the unexpected happens.

Invest your $10k

Exchange Traded Funds (ETFs) or passive investing

Sometimes used to dip your toe into the world of investing, ETFs are a type of investment fund that typically hold assets like shares and bonds. They aim to track or outperform a specified index, such as the ASX300. 

ETFs are typically one of the lower cost investment strategies, offering exposure to a wide range of asset classes. But because performance is tied to the index it is tracking, your money will go up and down in the same way.

Managed funds (active or passive investing)

For those thinking about how to invest over a longer time horizon, managed funds can be an effective option, offering professional investment expertise and a good level of diversification. 

You can usually choose to invest into one or more asset classes like shares, property, and bonds, with the benefit of a professional investment manager making the important investment decisions about what underlying assets to buy and when. You generally pay an annual management fee for their expertise.

Shares

Australians seem to enjoy dabbling in the share market - it makes for good barbeque chatter. But those who do, know it’s not for the faint hearted, and you should be prepared to experience periods of both ups and downs.

Shares (also called stocks or equities) allow you to buy a slice of a public company. A share has a listed share price that changes daily, so if you have $10,000 and a company’s share price is $1, you could buy 10,000 shares.

There are several reasons people invest in shares.

• Capital growth: if the company does well over time its share price will likely increase, so if it increases from $1 to $2 per share, your $10,000 investment would then be worth $20,000. But be aware, if the company hits hard times, the share value will almost certainly fall...and so will the value of your investment. 
• Income: as a shareholder, you may be entitled to receive regular dividends – basically a share of the company’s profits (assuming it’s doing well!). These can provide a potential income stream but there is no guarantee a company will pay dividends.
• Tax benefits: you may also receive franking credits on shares where the company has already paid tax on the dividend – effectively acting like a tax rebate. This only applies to Australian shares.

However, investing in shares comes with added risk as growing your money is linked to one company. This is why many people have a share portfolio where they invest into several different companies, and maybe across different industries, even countries. 

Pay down debt with your $10k

When the world is booming, it’s a great place to be. Good job. Nice house. Regular holidays.

But there will also be hard times, and the recent COVID-19 pandemic has brought this home to many.

When thinking about how to invest $10k, it might be best not to invest at all. Instead, consider paying down some debt to give yourself some breathing space for times when household finances come under strain.

Think about prioritising your debt and address this first. Where are you paying the highest interest rate or fees – typically credit cards or personal loans? 

While a home loan might be your largest debt, it’s also considered ‘good debt’ because you have a valuable asset sitting underneath it. If you have an offset account linked to your home loan, any money you have sitting in here will also be helping reduce the amount of interest you’re paying. 

Spend your 10k

Spending money on existing assets can reap long-term rewards. You’re investing for the future by improving their value.

Think about the difference spending $10,000 on home improvements could make – a new kitchen, updated bathroom, landscaped garden. Even some simple repairs could make a difference to the market value.

But as with all investment decisions, it’s a good idea to get some advice. After all, the aim is to add value and you don’t want to overcapitalise. Adding a swimming pool is a classic example of something that looks beautiful but may not significantly change the value of your home.

How to invest – a recap

• Always keep in mind the simple rules when it comes to making decisions about your money.
• Have a plan – define your goals and investment timeframe.
• Diversify your investments both in terms of risk and perhaps timeframes, so you always have some short-term emergency funds as well as money invested for longer term wealth building.
• Don’t forget to review your financial situation regularly to make sure your still on track to achieve your goals.

Next: Passive and active investing