How to Invest $10k – Here’s What I’d Do

September 19, 2021

How to Invest $10k - Here's What I'd Do

The purpose of this article is simply to explain how I personally invest my own money; other people may choose to do things differently (and probably should).

My goal is to not lose any money.

I make no guarantee that you will earn any money following my advice. If I lose 10%, then it's because all the stocks I own went down by 10% together, and I didn't sell anything or buy anything.

This article doesn't attempt to predict the future direction of the stock market; if you need that for your investment decisions (and can find someone with a track record of doing this successfully), please invest only the amount they recommend and nothing more.

That being said, let's get started!

How I Would Invest $10,000 Right Now

The first thing I did when I started putting serious money into investing was open up a Roth IRA account at Vanguard.

My recommendation for new investors is to have 3-6 months' worth of expenses in cash in your checking/savings account at all times, so you can deal with any unexpected expenses or dips in income without having to sell investments. After that emergency fund has been established, there are several good options for investing beyond just keeping it in an online savings account earning next to nothing.

If I were 59 or older, I would be investing in a Gold IRA with Goldco, and I would consider investing in a SEP IRA if I had significant income.

Request Your Free Gold Investing Kit here.

A $10,000-$20,000 investment in a gold-related account right now could grow nicely over the next few years (especially considering gold stocks' performance during this past recession).

If you're too young for either of those options though, don't worry - there's still plenty of good ways to invest.

That being said, since I'm in my 30's, I'll stick to a regular Roth IRA. This is where I would put the bulk of my new money.

The Roth IRA is fairly simple

vanguard roth ira

One option is to open up a Roth IRA account, which is an individual retirement account that allows you to invest money into stocks or bonds. There are very low fees associated with buying investments inside of an IRA, and virtually no circumstances under which it makes sense not to max out your contributions for this year. The Roth IRA contribution limit for 2021 is $6,000 if you're below the age of 50, and $7,000 if you're 50 or older.

To get started, just open an account at Vanguard, and then whenever you want to buy or sell one of their low-fee index funds, simply log into your Roth IRA account on Vanguard's website, click "buy" or "sell," enter the amount you wish to spend/make in U.S. Dollars, and purchase it.

You'll get a confirmation email after your transaction has been completed; you can pay for most things with your bank debit card if you don't want to wait for a check in the mail.

The key with this type of account is that it's completely tax-free when you withdraw the money, provided that you're 59 and a half or older and have had the Roth IRA for at least 5 years. So if the stock market makes some huge gains, your principal will continue to grow completely untouched by taxes until you withdraw it.

This means that you can invest your money without worrying about quarterly taxes being taken out on any dividends or capital gains distributions, which lets your money compound much more quickly than usual.

Also, since it's an individual retirement account, this investment is generally limited to $6,000 per year per person, but won't worry - you can put in the remaining $4k on January 2nd! 

If you don't even have $6,000 to put into an IRA, don't worry - there are still plenty of options. 

Vanguard has several mutual funds that are designed for beginning investors, where the minimum investment is only $1,000. These funds aren't going to make you rich, but they're a good way to get started with diversification in a low-risk way if you can afford it.

What I like about Vanguard is that you can open an account with as little money as $1,000 and invest in practically anything (individual stock, index funds, etc.).

What I Did

I personally went "all in" on my first purchase with Vanguard by making what I considered at the time was a large purchase for my financial situation; about 10% of my total investment portfolio. Since I had already built up a sizeable emergency fund at Vanguard, I was able to take advantage of their no-fee trading program and make a one-time purchase of a single mutual fund called the VTSAX.

VTSAX is a way for me to own stock in ~3,500 different companies, all within a single mutual fund. It's been around since 1988 and has provided an average annual 5 Year return after fees of 10.95% as of September 2021. Even if just looking at the year-to-date return (September, 2021), it's returned 9.55% over this period. This means you'd have made more money investing in VTSAX than putting your money in a savings account, and almost as much as what you would have made from putting it into a CD or treasury note.

I set up my Roth IRA to automatically purchase $100/month in VTSAX after I made my initial purchase.

Once you reach your $6k limit for the year, you just have to wait until the next year to add $4k more to reach your $10k goal.  

It's nice not having to worry about making any more purchases, and this small amount has added back approximately $400 worth of yearly dividends so far.

Even though Vanguard does not offer anything like DRIP (Dividend Reinvestment Plan), where we would be able to save on taxes by including the dividends paid out each quarter directly reinvested into additional shares of the same fund, there are similar benefits I can take advantage of such as fractional shares.

The gist is that every time an account at Vanguard receives a dividend payment, Vanguard automatically breaks it up into additional shares of the same fund at no fee.

This is far from a perfect example given how amazing the return has been over the past 10 years, but it's a way to get more value out of your dividends and reinvesting money into VTSAX.

Other Uses for Roth IRA

There are many other things one can do with their Roth IRA account (real estate investment trusts, precious metals, etc.), but purchasing index funds like VTSAX is pretty much all I've done so far. It's not necessarily perfect and we can likely do better than this by doing more in-depth research into individual companies, but it does seem like one of the best options available at Vanguard and also diversifies our risk across thousands of separate companies instead of just a handful.

It would be difficult to go back to having $10,000 in money market accounts earning next to nothing every year! However, if you think your investments might take off later on or already have quite a bit saved up, you could also consider lowering the amount of each purchase or even splitting up your Roth IRA between multiple funds. There are some limitations though so make sure you read about them first before deciding on any changes to your own account.

As someone who has had multiple savings accounts in the past, earning far less than 1% interest per year, moving everything into one Roth IRA where I can easily invest by buying index funds seems like a no-brainier. The idea of "paying yourself first" is generally great advice (at least when you have extra money) and Vanguard's low expense ratios make it even more worth it to sign up today.

It might be difficult for some people to get started with their first purchase, but there's nothing stopping us from signing up now and making our first purchase next month or next year instead!

There are also plenty of options similar to Vanguard out there to choose from if they don't work for you or your circumstances. No matter what, I hope you're able to find some way to start investing ASAP!

Let me know if there are any particular tools you use when managing your investments or anything else I can help with in the comments below.

Thanks for reading and have a wonderful day!

About the author 

Jenna Lofton, the founder of StockHitter.com, has been actively trading stocks and investing for nearly 11 years.

She holds an MBA in Finance, and another in Business Administration, and lives in Staten Island, NY.

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