The options are numerous and can be overwhelming if left solely to your own imagination. We hope the following suggestions are helpful in narrowing down your choices of how to invest this $5,000.
Fire up that IRA
The 2019 contribution limit for IRAs is $6,000, so you’re just shy of hitting that with this $5,000 windfall. Maybe you can pull together the last thousand? Regardless, if you’ve already maxed out your 401(k) (or don’t have one), an IRA is by far the smartest place to stash this cash.
IRAs are perfect for self-employed workers or those whose companies don’t offer retirement planning. There are an endless number of banks and brokers (both online and brick-and-mortar) who can help you set it up.
Consider commission-free ETFs
That $5,000 can easily set you up with standard index funds or mutual funds and exchange-traded funds are a great supplement to help diversify your portfolio. They behave much like stocks and the buy-in share price tends to be lower than the usual minimum for other funds. They also provide flexibility to customize where your money goes to best match your age and comfort level with risk.
Give it away
A $5,000 investment may be a drop in the bucket on your road to retirement, but for others, it may represent a whole lot more. Whether it’s the Red Cross, hunger prevention, or instruments for the school band, five grand can go a long way for those in need (and get you a tax deduction).
This extends to your personal network as well. If you have elderly relatives who feel cut off from your world of text and FaceTime or a special-needs niece who has mobility challenges, $5,000 can easily hook them up with a user-friendly phone, tablet or smart speaker that just may change their lives dramatically.
Invest in your home
If you’ve been itching to redo the kitchen or add a back deck, now may be the time. Not only will it improve your quality of life (and give you another reason to throw that swanky dinner party), but it could also significantly increase your home’s resale value.
Although $5,000 may not get you all the way to a new kitchen or deck, it can cover the cost of new floors, windows or a fresh coat of paint.
Pay down debt, save on interest
A vast majority of financial experts agree that before delving too deeply into investments, charity or home improvement, be sure to pay down any substantial debt, be it credit cards or student loans. If your investments bring in a 10 to 15 percent return per year, but debt payments demand 20 to 30 percent, you’re tossing money down the gutter.
An extra $5,000 could take a mighty bite out of that debt and help to even the playing field, or even tip it in your favor.
Don’t wait
No matter how you invest $5,000, the earlier you do it, the better. Whether it’s compound interest, long-term market gains, tax incentives or increased home equity, the benefits far outweigh letting it sit in a savings account.
Our e-book Your Guide to Popular Retirement Plans can help you plan for when windfalls come and when times are tight.