Wednesday, July 24

How to Invest $10k for a Richer Life in Retirement

You are fully prepared to retire, you’ve got all the needed funds in place, and you have a 20-year plan. That’s great, then you must be one of the few soon-to-be retirees out there who planned it all out! Now that you’ve got everything figured out, I think you are ready to discuss a tiny additional step you might want to consider, that could easily improve your finances even more.

I am talking about investing. When it comes to playing catch-up with your retirement savings, every single dollar counts. As the economy improves and the cash starts flowing, you could use the opportunity and increase your funds even further.

Let’s say you take a larger amount of money ($10,000) and you put it into a retirement fund in such a way that it doesn’t negatively impact your retirement savings or break your monthly budget. You could either get such an amount from an inheritance, a raise, or even as a profit from your home sale. You could add it to your retirement fund, OR you could invest it and make even more. Here’s how to do that:

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Invest in index funds

If you have a 401(k), IRA, or SEP, or you are investing for a low fee, you should consider the idea of diversified equity index funds. In fact, getting an index fund, which basically tracks the performance of a chosen market sector, and keeping on investing thoroughly no matter where the market stands is one of the most prudent strategies.

Probably the most appropriate choices are exchange-traded funds and notes, mostly because they track broad market indexes, and it’s something that the wide majority of investors could benefit from. Besides, you could easily apply some index fund amplifiers, as it might help grow your financial funds.

For instance, dollar-cost averaging into an ETF or an index mutual fund is probably one of the best lifelong strategies. I know that the term might sound a bit complicated, but it’s not: dollar-cost averaging is nothing but an easy technique for investing a fixed amount of money in the same fund over a prolonged time.

Get into a 401(k) plus a company match

Have you ever thought about investing a $10,000 windfall? And if so, what was your plan? If it were to ask us, we’d definitely recommend you add a retirement savings account that might help your funds to compound over time. Naturally, compounding is based on three main things: time, money, and positive returns.

The number one option would be to consider taking advantage of your current employer plan. Various plans might include a match to increase those savings, so your employer’s part in this contribution could help you meet your goals faster than you thought.

Besides, if there’s a salary reduction added to the scheme, you will be dollar-cost averaging into the market over a prolonged period of time. The real investments should be solely determined by your risk tolerance and your time horizon in a diversified portfolio. In the majority of cases, this is for a longer period of time.

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Focus on age-appropriate investing

Your age is certainly relevant when it comes to steering that $10,000. In fact, it all comes down to one thing: the investment time horizons. Those who decide to invest and are 25 and 30 years old, have a longer time horizon (which is obvious if you think about it), and they can benefit from slightly reduced volatility and better returns.

With an investment in the equation, these two can be generated in a long-dated private equity or even a private credit fund, which would be managed by some of the best asset managers. However, for those with a shorter time horizon, say between 45 and 50 years old, it would be better to try a blended approach, with an increased allocation so you can yield more generating assets with downside protection.

All these investments could include either a real estate debt or an art financing, and both are collateralized by real assets, which later gain value in any environment influenced by inflation, and they could provide your principal protection.

Put money into a Roth IRA

If you’re 50 years or older and you already have $10,000 on the line, and your employer can’t match it, you should consider putting the money in a Roth IRA. Now that the 2023 contribution limit reached $6,500 with a $1,000 catch-up for all seniors of age 50+, you might have to consider making contributions for two years.

Ever since you made a contribution for 20233 until April 18, you might contribute those $10,000 into your Roth IRA account and have it treated as a contribution for last year or this year. The benefits of such a retirement account also include tax-deferred growth, and there’s no income tax on withdrawals, as long as the account was already made, went through a minimum of five tax years, and you’re over 59 and a half years old.

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Leverage high-yield accounts

You should consider taking a protective stance with those $10,000, especially if you’re closer to retirement age, and steer it right into a savings account at your bank. Retirement savers are known to benefit from high-interest rates in particular account programs.

The best recommendation would be to take a blended approach and mix your cash positions with various other asset classes in an IRA with other stocks, bonds, and even gold. Together, these asset classes might bring you long-term stability and even capital appreciation.

Consider a REIT

REIT is a chance for investors to access a wide range of real estate sectors, while also providing a strong and steady stream of high-class dividends, which marks the potential for long-term, secure capital growth, but also diversification.

Considering that REITs are providing strong dividend income, they are a highly relevant investment, both for those who want to save for retirement, but also for retirees who want to guarantee an ongoing income stream so they can meet their own living expenses. Investors could easily try investing in a REIT, by simply buying shares, or, alternatively, through a mutual fund or ETF.

Probably one of the biggest benefits is that you won’t need a lot of money to invest. In fact, you might find some ETFs that invest in REITs and that are currently trading between $50 and $100. How would you feel to know that only $100 could get everyday investors the needed exposure to well-diversified commercial real estate, including all the benefits that come along with it?

Weigh debt reduction vs. investing

The question is whether you should pay down debt with those $10,000 first or directly invest them in other markets. Well, no matter what you decide, you have to weigh in a couple of factors: the type of debt you own, how much are those payments, and if you’re paying the bare minimum, what’s the interest rate that you are being charged, and if you are even able to pay the full amount of debt.

Because truth be told, paying off your high-interest credit card or loan is probably the best thing you could do right now, as long as you’re later committed to investing the money. Paying off that $10,000 on a $20,000 car loan might reduce the interest that has strangled you for so long and allow you to get rid of it sooner, but it won’t fully reduce your monthly payment.

Now that we’ve tackled this matter, you might be interested in reading this, too: Worst 11 Ways to Spend Your Retirement Savings, According to Experts

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