How to Invest $40k – 10 Best Ways to Invest $40,000 in October 2023

Video how to invest 40k

So you’ve finally saved up $40,000. Well done!

Instead of parking it in your checking account and earning 0.01% interest, you might want to put that money to work so you can start building real wealth.

Interested in building wealth while minimizing risk? You’re in the right place.

We’ve put together a list of how to invest 40k that allows you to diversify your investment, grow your net worth, and spread your risk across multiple asset classes. If you’re wondering where to invest 40k, consider these ideas:

At-a-Glance: Best Platforms to Invest 40k in 2023

Where to Invest $40k in 2023

Let’s get onto it. Want to know how to invest 40k? Start here.

1. Alternative Assets (Fine Art & More)

If you want to diversify away from traditional investments, there are plenty of alternative investments to choose from. Investing outside of the stock market or real estate can be a great way to balance your holdings with non-correlated assets – which are investments that don’t follow the ups and downs of traditional markets.

In the past, you’d need a lot of cash upfront to invest in alternative assets, but there are now online platforms that let you buy fractional shares of ownership of assets.

For instance, Masterworks allows you to buy shares of ownership in fine art.

Instead of bringing $50 million (or more) to the table, you can purchase shares of works by the likes of Andy Warhol, Cecily Brown, and Claude Monet.

Their track record is impressive. For instance, in 2020 they delivered 32% returns after selling a Banksy piece.

(Masterworks has also recently delivered 14%, 17%, and 21% net annualized returns to investors.)

Plus, it’s worth noting that art has outpaced the S&P 500 for the past 20+ years. Art has very low correlation to the stock market, which makes it a great way to diversify.

2. Stocks + ETFs

One of the most popular places to start investing is the stock market. With thousands of stocks and funds to choose from, you can easily find a place to park your savings to grow your wealth.

But before you drop $40k into Gamestop (NASDAQ: GME) to try and 10x your money, you should consider your investment strategy.

Picking a few quality individual stocks can be a great growth investing strategy, but it’s also a bit riskier than diversifying your money with an index fund. While individual stocks let you invest in a single company, ETF index funds allow you to buy hundreds (or thousands) of stocks within a single investment.

A safer play is to invest a majority of your cash into ETFs across several market sectors while picking a few individual stocks to put a much smaller amount into. This lets you spread your risk so that a poor-performing stock doesn’t sink your whole portfolio.

Another option for how to invest $40,000 is to find a few dividend stocks to invest in for regular income payouts. Established companies will occasionally issue a quarterly dividend from excess earnings, paying out cash to shareholders on a regular basis. This can be a great way to receive regular cash payments just for holding a stock.

Investing in the stock market is easy these days. You can find a quality online broker (such as eToro and invest in stocks and ETFs right from your mobile device.

eToro is easy-to-use, powerful, and modern, which is why it’s our #1-ranked broker — for the purposes of this article, the fact that ETF investing is one of its best features doesn’t hurt. It has virtually everything you could possibly want for ETF investing: You can research, set alerts, add to watchlists, and invest in 221 different ETFs, all with commission-free trading.

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3. Real Estate

If you’re thinking of how to invest $40,000, you might consider investing in real estate. But the down payment alone might take all of your spare cash, and you’ll need money for improvements, maintenance, repairs, and the ongoing costs of owning a rental property. Not to mention the headache of being a landlord.

Another approach to investing in real estate is choosing an REIT to invest in. A Real Estate Investment Trust is a company that buys rental properties and issues shares of ownership to investors. As an investor, you don’t have to perform any maintenance or handle tenants, but you earn income from monthly rents collected.

You can research the best REITs using WallStreetZen Stock Screener and locate the ones that offer the highest potential returns. Once you’re ready to actually invest, it’s easy to do through brokers like eToro. Just make sure to research the fees before picking an REIT to invest in.

Another way to invest in real estate is through crowdfunded real estate sites like Fundrise or Arrived Homes.

On fractional real estate investing platforms, you can choose residential or commercial real estate projects to invest in and receive income monthly from rental payments. Once the property is sold, you can also earn income from property appreciation.

Fundrise offers a low initial investment and access to a wide range of commercial real estate investments — as well as access to other assets like credit.

Arrived Homes focuses specifically on single-family homes, letting you invest as little as $100 for ownership in a rental home. You know, if you want that investment property lifestyle without buying or taking care of the property. The company is fairly new, but it’s backed by Jeff Bezos of Amazon fame — and as of earlier this year, Arrived Homes has purchased over 225 homes in 39 markets and maintains over $85 million in total investments. Not bad! To learn more, check out our Arrived Homes review.

4. High-Yield Savings

$40k is a solid amount of cash to have on hand, but don’t keep it in your checking account. Most bank accounts pay less than 1% interest, making it a terrible place to park your cash. But high-yield savings accounts offer high interest rates with essentially no risk.

Right now, there are several high-yield savings accounts that are offering at least 4.50% interest on deposits. While this rate won’t stay this high forever, interest rates aren’t going down anytime soon.

M1 Finance is offering one of the highest rates in the market for qualifying M1 Plus account holders.

This alone could pay out over $2,000 in the first year you deposit your $40k.

Looking for other options?

Empower also offers a high rate in their high-yield savings account, paying out as much as 4.70% without the need for any membership.

5. Pay off High-Interest Debt

While investing tens of thousands of dollars is exciting, you might get a better return on investment by simply paying off your high-interest debt. If you have debt with an interest rate of 10% or higher, you can essentially earn a 10% return by paying it down.

Credit card debt, auto loans, personal loans, or any other debt with a high rate can cost you hundreds of dollars per month in interest alone. That loss compounds over time, keeping you in debt and preventing you from growing your net worth.

Putting together a debt payoff plan is the best way to become debt free. Getting on a strict budget and putting all extra funds toward your debt principal can help you quickly become debt free. Whether you pay off the smallest-balance debt first, or the one with the highest interest rate, the key is to focus on one debt at a time.

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I mentioned Empower earlier as a resource for high-yield savings. What I didn’t mention is their free dashboard, which is loaded with tools that can help you keep track of your money with ease. Thanks to free offerings like their Investment Check Up tool and Budget Planner, you can help keep your budget and investments in line — and start working toward specific goals.

6. Use a Robo-Advisor

If you don’t feel comfortable investing it yourself, you might consider hiring a financial advisor. The problem is that many advisors charge high annual fees, and some even collect commissions on investments they sell you, which can hurt your investment performance.

An alternative to hiring an advisor is using a robo-advisor service. These companies automate the investing process, helping diversify your investments across low-fee funds, and charging a fraction of the costs of a traditional financial advisor.

Companies like Betterment offer comprehensive financial planning, including goal setting, portfolio construction, automatic rebalancing, and even advanced planning features like tax-loss harvesting. Even better, instead of charging 1% to 1.5% annually, you only have to pay 0.25% of your account balance.

M1 Finance also offers impressive automated investing options. You can simply turn on “auto-invest” to begin intelligently investing the cash in your Invest account.

7. Bonds

Bonds are used by the government and corporations to raise money, and when you invest in a bond, you are essentially loaning money. Bonds are seen as a safer investment than stocks and real estate, and pay out regular coupon payments to bondholders.

You can invest in individual bonds or in a wide range of bonds through a bond fund. Some bond funds even hold thousands of different types of bonds inside them, diversifying your bond holdings and spreading your risk.

Investing in bonds isn’t exciting, but it can help stabilize your overall investment portfolio. If you desire a safer investment as part of your plan, picking up a few bonds or bond index fund can be a great option.

If you’re interested in corporate bonds, M1 Finance has a solid selection of offerings, alongside other securities you might be interested in investing in, like ETFs and stocks.

8. Save for Retirement

If you have $40k in the bank, you might be better off investing some of that money in a retirement account. Not only does it give your money more time to grow for retirement, but you can save on taxes at the same time.

Investing in your 401k account at work is a great place to start. Some companies offer matching contributions as well, allowing you to earn even more. Next, you can open an individual retirement account (IRA).

IRAs allow you to pick the broker and investments you want to choose. You can invest in a traditional IRA to save on taxes one, or a Roth IRA to save on taxes in retirement.

(We like Betterment and M1 Finance for Roth IRAs.) No matter what account you choose, saving for retirement now can help you retire sooner.

9. Invest in Yourself

One of the best investments you can make is in yourself. Taking online courses, building a business, or finishing your degree can have a major return on investment. And the more skills you learn, the more valuable you can become in the marketplace.

There are now online platforms that make investing in yourself simple (and cost-effective). Instead of paying tens of thousands for college classes, you can sign up for a platform like Skillshare and take online courses to learn specific skills.

First up, learn the basics. Skillshare’s Personal Finance Masterclass is a must-watch if you’re new to investing and want to learn the ropes; if you like learning with a side of sass, check out How Not To Suck At Investing.

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When you want to hone in on an investing strategy, you can find more specific classes on niche topics, like Excel In Real Estate Investing or Option Trading For Beginners — or even Learn To Swing Trade Using Charts.

But don’t stop at finance! If you want to learn how to shoot the perfect YouTube video, how to become a better graphic designer, or how to build a personal brand, you can sign up for a Skillshare membership and take all the classes you want. And most of these classes can be finished within a few hours, saving you time as well.

10. Gold

If you’ve got a large pile of cash waiting to be invested, you might want to consider setting some aside to invest in gold. Gold has historically been a store of value, keeping up with inflation and maintaining your purchasing power. This is especially important during times when inflation is rising (like right now).

While you can invest in Gold ETFs and other precious metal funds, you might want to own it directly. Owning physical gold allows you to take custody of your investment, and you don’t have to pay additional fees each year to hold it.

Online marketplaces like Silver Gold Bull offer gold bullion coins and bars with minimal markup, and they securely ship it to you directly. You can also invest in other precious metals, such as platinum, palladium, and silver.

BONUS: How to Invest $40K: What About Crypto?

Cryptocurrency has become more popular than ever, but is it a good investment? While the crypto marketplace is rife with fraud and bad actors, there are still a few solid coins you can invest in, such as Bitcoin and Ethereum.

Bitcoin is the original cryptocurrency, and is now held by many institutions and hedge funds as a version of “digital gold.” The price has dropped significantly from all-time-high prices in 2021, which might make it a better time to start investing.

But as a speculative investment, you should never put any money into cryptocurrency that you can’t afford to lose.

Why Tax-Advantaged Accounts are Crucial

If you want to maximize the growth of your investments, putting some money away into tax-advantaged accounts can help. Accounts like IRAs, 401ks, and HSAs offer tax savings when you invest.

You can choose a Roth 401k or IRA to save on taxes when you retire, or stick with traditional accounts to save on taxes now. When you invest in a traditional tax-advantaged account, the amount you invest is deducted from your taxable income. This allows you to pay less in taxes and put more toward investing each year.

Best Way to Invest $40K: What About Allocation?

If you’re investing a big chunk of the $40k that you’ve saved up, you’ll want to consider how to allocate your funds proportionally. Asset allocation is the practice of splitting up your investments between different types of assets, including stocks, bonds, real estate, and other investments.

When you’re younger and have a longer time until you retire, financial planners typically recommend investing more aggressively. This means allocating more toward growth assets like stocks, real estate, or alternative investments. As you get closer to retirement, the allocation typically becomes more conservative, adding in more bonds and stable income investments.

Final Word: How to invest $40k

The best way to invest $40k will vary from person to person.

Your age, goals, timelines, risk tolerance, and other factors will come into play when choosing the best investment for your lifestyle. Whether you choose to invest in the stock market, alternative investments like Masterworks, or safer assets like bonds or a high-yield savings account, it’s important to put your money to work. After all, financial freedom is up to you, and you won’t get there leaving cash in your checking account.

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