How to Invest 20k

Daniel Penzing
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Learn how to build a $20,000 investment portfolio

Using common stocks and ETFs.

Building a $20,000 Investment Portfolio

Building a portfolio is one of the keys to reaching retirement, and most people will do this through investing.

Proper investing principles can be tricky to follow, making it easy to lose money. But it’s much easier to manage if you focus on some of the basics. Luckily, you don’t have to know everything about investing to get started, and you’re sure to learn a lot as you go.

Building your portfolio is the most important part, and that doesn’t take a lot of money. You can learn about investing at the same time, and you’ll get into the action as soon as you’ve saved up a little money to get started with.

This article will help you get started by guiding you through your portfolio construction, and it will also provide you with some great tips to remember as you create your own portfolio (such as diversifying your financial investments into different sectors). It will also cover more advanced pieces of information (such as dollar cost averaging investing).

Step 1. Cover Your Financial Needs

The first step is to ensure that you have a stable income and that your bills are paid for the next three years. Looking into finances is always a difficult decision, especially if you’re betting all you have on something that could potentially fail. However, by taking a practical, long-term mindset, you can get through this step with little hardship. Remember, if you don’t get rich, you’re still going to be okay and will likely have an easier financial life than most people. If you think that you ARE for sure going to make this happen, get going! You’ve done most of the research already. You have a ton of information and know what you’re doing. Your only roadblock now is yourself … but that too can be overcome.

Build an Emergency Fund

The first investment I recommend everyone make is an Emergency Fund. This fund is to be used only in the case of an emergency. Examples of emergencies are a broken water heater or a major medical issue. Examples of things that are not emergencies would be a vacation or new cell phone. If you do end up using your Emergency Fund for something that is not an actual emergency, be sure to replenish it as soon as possible.

Your Emergency Fund also gives you peace of mind. Knowing that you have some money saved for a rainy day or for an actual emergency can make a big difference in your stress level.

Pay Off Your Debt

Many people have financial goals that they want to achieve in their lifetime and the most common thing people want to do is to pay off their debt. It’s a simple situation where all you need to do is to just take away the value of what you owe and that would be your solution. However, there’s more to it than that. You must make sure that you pay off your debts and won’t get in anymore. Because if you still put yourself into debt by spending money to live, that would defeat the purpose.

An example would be to buy a house and you would have a mortgage. As long as you have a 20k house and you have 20k in student loans then you have conquered your debt because your house is worth well more than 20k but you owe 19,999 on your student loans.

You could put the rent payment towards the payment of your debt, but when you exit your lease it’s no different than you having a job where your rent is a part of your salary budget and the deficit of what you owe on your student loans.

Other things to consider are improving upon a future financial situation. For example, if you have stocks you can sell some of those and invest that money directly into what you owe. You can also re-mortgage your current house and pay off what you owe.

Step 2. Invest in an Employer-sponsored Retirement Account

Step 3. Invest in a Self-directed Retirement Account

Once you’ve got a Roth IRA set up, you can buy a self-directed IRA custodial account and set your investments to go through that account. This gives you the freedom to invest in any investment vehicle (such as real estate or a small business) that’s allowed by the IRS. If you’re interested in researching real estate, click here for a free download of our real estate investing seminar.

Step 4. Invest With a Robo Advisor

The goal here is to buy stocks and other assets in a way that makes you money while expending the least possible amount of effort. This is the principle of laziness.

Automated investing has come a long way over the last few years and I believe that robo investing is the best solution.

The reason why you want to invest with a robo is that it's easier, cheaper, more passive, and you can ignore it for as long as you want.

You can learn more about robo investing at the end of this guide.

In short, the robo will invest in ETFs that track stocks but won't buy any single stock directly. This makes it easier to scale out.

Step 5. Invest in Stocks with a Brokerage Account

Once you have a feel for what could be worth buying, and have a decent list of stocks, you should open an investment brokerage account. You will often need to deposit a check with the brokerage account to open it. Since you will be working with outside brokers, you want to stick to a brokerage that has a branch in the country that you reside, so that you can deposit physical checks if needed. Opening your brokerage account can be done online, but in most cases, you’re better off to visit the office and set it all up in person. The investment brokerage account acts as an interface between your investment portfolio. Once you have access to a brokerage account, you can fund it with dollars or Euros, and then, specify to the brokerage who you want to invest in. If you request your broker to purchase stock in a company, you will get a confirmation email or a statement detailing the transaction that has occurred.

Step 6. Create a College Fund for Your Kids

Half of your money is already in a retirement fund and the other half can be used toward the college fund.

Invest 15k in the current account that you have at the bank. You need to put this money into a type of account that has a higher return than the money market account.

This account should pay more than 10%, but it should have low risk.

Traditional savings accounts and certificates of deposit tend to have low interest rates, which is why you need to find some that offer higher ones.

Step 7. Invest in Real Estate

This is a long-term investment. With few exceptions, real estate is not a quick-and-dirty money maker. When you are looking at this option, make sure that you spend time researching the neighborhood, the state, the location, and the property. Once you do your due diligence, you’ll be able to put your money in a safe place that will be profitable in the long run.

The lesson here is that research is king. Put in the time and you will make the money.

Step 8. Invest in a Quality Company…If You Can

By now, you should have a good sense of what term you want to invest in and what kind of terms you’d like to see.

The decision you make from here largely depends on whether you have a market to work in.

There are several great companies out there that are hiring and growing, and can directly benefit from your skills, local knowledge, and experience. It’s possible that this type of investment will be more lucrative than any other on this list.

Some companies that are currently hiring in West Virginia include:

  • Allstate Insurance
  • BJ’s Wholesale Club
  • CVS Health
  • FedEx Ground
  • FirstEnergy
  • Goodyear Tire and Rubber

Step 8. Invest in Peer-to-Peer Lending

P2P lending is all the rage in the personal finance world nowadays, and it can make a lot of sense. If you read our guide and browsed around the websites, you’ve likely come across plenty of information about the typical returns you can achieve.

The average interest rate and returns are in the 8% range, and a good portion of lenders report returns of 12% … 15% … and sometimes even 18%. Sure, P2P lending looks like a great way to make a decent amount of money on your investment. However, there are some important things to consider.

So far, P2P lending has only been used by less than 1% of Americans. This hasn’t had much of an impact on the economy or the financial markets. But could you imagine if the same percentage of Americans (roughly 169.5 million individuals) started lending money online? P2P lending can magnify any problems within a given market by a hundredfold. This is what we mean when we say P2P lending has the potential to create a crisis.

This does not mean you should never invest in peer to peer lending. It does mean that you should probably cautiously consider what kind of risk you’re trying to take.

Align Your Investments With Your Needs

For many, investing means buying into stocks and bonds. But are these investments the best way to grow your money through the years?

It may surprise you to learn that there are several other, less commonly known investment options that have the potential to help you “grow” your money and give you a healthier return on your cash.

For example, many investors overlook alternative investments, such as real estate and managed futures. These investments are typically more stable than stocks and bonds, which means your return is also likely to be steadier and less volatile. This can help you feel more secure about your investment choices.

There are other ways to diversify your portfolio, such as adding loans and commodities. And if you’re interested in real estate, there’s a wide range of options, from multifamily buildings to farm land to raw land. There are even alternative investment opportunities in the developing world, if you’re willing and able to take on some additional investment risk.

If your aim is to simply preserve your wealth and invest in safe, solid investments, real estate and alternative investments may very well be a good choice for you. And if you want to make as much money as possible from your investments, these investment options may also be a good choice for you, because they have the potential to give you healthy returns.