How to Invest $5,000

Daniel Penzing
Written by
Last update:

Discover 10 ways to invest with as little as $5,000

Investment can seem like a cold and distant idea. But when you invest with cold hard cash, you take a certain amount of risk (though, that risk can be minimized) and you are guaranteed to gain something from the process. Something that you can use or a way to secure your financial future, or both.

How to Invest 5,000 Dollars

When you are young and have a little extra money, it can be tempting to buy things.

You might spend your money on clothes and other luxuries, or you might choose to invest in your future.

It could be tempting to buy more things, but in the long run, a good investment is the way to go.

Invest in Your 401(k) and Get Employer Matching Dollars

It’s never a bad idea to invest your money. If you’re fortunate, you’ll find a 401(k) plan offered by your employer. Even if your employer matches only a small percentage of your contributions, that amount is worth getting. It’s free money that can pay off nicely if your investments go in the right direction.

Some people make the mistake of stopping their investment contributions to their 401(k) after they get the match. This is a mistake because you get the tax benefits before you deduct your contributions from your taxable income, thereby dramatically reducing your tax burden for the year. Keep contributing to your 401(k) no matter how much you’ve invested.

Best Time to Invest.

If you’re really eager to start investing your contributions, then you can do it right away. But it’s best to allow some time for your contributions to compound, allowing you to earn more interest. Before you decide when to invest, you may want to talk with a financial adviser if you have questions about making other financial decisions.

Decide What You Want to Invest In; Stocks, Bonds, Mutual Funds or CDs.

Pay Off High-interest Debts First

Since your debts are probably costing you a fortune every month, it’s a good idea to get them paid off as soon as you can.

Pay off all debts that have a higher interest rate than three percent as soon as possible.

Also, go ahead and take care of your debt with the highest interest rate first. Doing this will lower the balance of your debts and save you money in interest payments.

Use a Robo Advisor

If you’re having a hard time sticking to your long term investment plan, I recommend using one of the services a robo advisor offers.

A robo advisor is an online service that provides you with financial advice. For a small fee they will manage your investments and help you follow a sound investment plan.

Their investment plan is realistic and have a lot of advantages. You will be able to invest everything you need without worrying too much about over spending or ending up with nothing.

A robo advisor will provide you with a portfolio of exchange traded funds. A robo advisor will manage your portfolio. If the market goes up, you will be able to reinvest the profit for more return. This will greatly decrease your return based on risk.

A robo advisor will also be able to help you save money on taxes. They will be able to buy and sell based on changes in tax rates. This could potentially save you thousands of dollars.

A robo advisor does not offer any advice on insurance or college savings. But you can get help with insurance from a separate insurance broker and you can get help with college savings from a different financial advisor.

Invest in High-quality Dividend Stocks

Dividend stocks should be the staple of your portfolio. These are companies that you can rely on to raise your income year after year through their multi-billion dollar operations. These are not the same as growth stocks.

Growth stocks are the ones that get you from zero to a million faster, but they come with bigger ups and downs and can be a lot riskier. Growth stocks are perfect for a brokerage account with more capital though so make sure you save up a nice nest egg in your brokerage account before you start buying high The dividend stocks I own and will continue to buy to raise revenues are these three:

Johnson & Johnson (MJN)

Dividend Yield: 3.1%

I chose this company because of two things.

One, its a consumer staple company. That means when the rest of the market is down, it’s business as usual for them.

Two, it’s based in New Jersey, our neighbors. And I won’t invest outside my region. My neighbor is as close as it gets.

Procter & Gamble (PG)

Dividend Yield: 3.1%

The second dividend stock I chose is Procter & Gamble, also a consumer staple, and also a company I’m comfortable with because of its New Jersey roots.

Create a Diversified Portfolio Using Buckets

Asset allocation involves choosing the right mix of stocks, bonds, and cash with which to create a viable investment portfolio.

According to Tom Gayner, CIO of Markel, one of the most common errors beginning investors make is investing too much in a single security or sector. Many who are lured by stocks that seem to be "hot," end up regretting their decisions when the market comes crashing down.

"Stay diversified," cautions Gayner. "Take some money and put it in cash, some in bonds, and some in high-quality stocks. Then rebalance."

Fund a 529 Plan for Your Child's (or Other Relative's) College Education

The college fund is one of the best and most important investments you can make in your child's future. With the rising cost of college, it's more important than ever to start early.

A 529 plan is a type of investment tool that is specifically designed to save for college. It draws from two different types of people. One group are parents who are committed to saving for their kids' college education, and the other are those who know that the odds of going to college are not in their child's favor.

529 plans are sponsored by the individual states, but they are managed by an independent investment firm. Unlike other investment tools, you won't find the actual investments, such as stocks or bonds, in your 529 plan. In this way, the actual investments are a bit less important than they would be when you're managing your 401k.

The 529 plan allows you to take advantage of tax breaks in your home state. After you reach a certain age, you can withdraw from your plan at any time without penalty. You can use the funds for qualified educational expenses such as the tuition at an accredited college or university, room and board, books, and fees. You can also use these funds to pay for private elementary or secondary school, if you wish.

Finally, once you withdraw the money from the 529 plan, you can use it tax-free for any future educational expenses for yourself or any member of your family living with you.

Invest in International Bonds With Higher Yields

When it comes to investing five thousand dollars, you have plenty of options. International bond mutual funds are an excellent choice. International bonds are known for their higher yields. Typically, these funds specialize in government bonds. If you’re not familiar with government bonds, they’re issued by governments and have a 100% chance of being repaid.

This is opposed to corporate bonds, which have a lower chance of being repaid because of a more risky credit history. Although government bonds don’t have the same level of security and certainty that corporate bonds do, they do have a higher level of interest yield. The interest rates are higher because they have more exposure to market volatility.

When the market is volatile, the price of a bond fluctuates, and when the price of a bond fluctuates, the interest rate changes. If you’re trying to invest five thousand dollars, this can be a big help.

You’ll notice a significant boost in your yield, and you can get it without taking on a higher level of risk. Overall, international bond mutual funds are a great way to invest five thousand dollars. The higher yields are hard to pass up.

Buy Commission-free ETFs

You should buy a selection of the recommended low-cost ETFs that you want to hold for the long-term and forget about them.

You can then buy and sell them commission-free through a regular trading account like the account set up with your discount broker.

This way you do not need to worry about trying to time the market, rebalance and trading commission costs will be eaten up by income from dividends.

Take a Risk With Cryptocurrency

Cryptocurrency’s popularity is growing by the day and I think you should take advantage of it before it’s too late.

Cryptocurrency has huge potential and can grow really quickly.

The other people who invest in Bitcoin aren’t near as smart as you, and millions of incredibly smart people are still hesitating to invest in it. How is it possible that you are reading this and you know what others don’t?

You can put a small amount of money in two or three cryptocurrencies that I recommend and you can make a lot of money in the next couple of years if this will be the new currency.

If you invest in cryptocurrencies, use this link to sign up at Coinbase.

Similar to a real-world investment, consider using cryptocurrency as….

An Investment

You can either buy a portion of a single currency or buy a portfolio of various currencies. Buying multiple coins can be quite risky, so no matter what you do, set a limit of your risk and stick to it. If you’re going to buy into a single currency, make sure you know the person(s) or organization and be aware what data they’re collecting.

Fund a Health Savings Account

If you don’t have a Health Savings Account, open one up. It’s a great way to get a return on your health care money if you are diligent. If you are at a light or standard Flexible Spending Account, stop contributing. You’re wasting it there.

Think About the Level of Risk You're Comfortable With

Each investor has their own risk tolerance. Regardless of how much or how little you have to invest in the stock market, you have to be comfortable with the level of risk you take on. If you cannot afford to lose money, stocks are probably not for you. But if you are willing to take some risk, there are some great financial opportunities to take advantage of.

To figure out what you are comfortable with, you should look at how financially stable you are. The basics you should have in your life are taken care of. Regardless of how much you make, it is important to have a comfortable living situation. If your living situation is at risk, you are going to be nervous and most likely cash out. You are also not going to want to jeopardize your financial future.

Determine What You Need

Once you have a good place to live, you need to look at what you need. Do you need to replace your car? Do you need money for your retirement? You also need to take into consideration any upcoming expenses you will have. This means if you are planning a big vacation or you have to purchase new clothes soon, you might not want to invest large sums of money into the stock market. You should always be prepared for your future.

Trade-Up to Better Choices as Your Investment Pot Grows

Start Investing Today