Rosalind Evans
In 2023, you have many options if you find yourself with $50,000 to invest—whether through savings or an unexpected windfall. To help navigate these waters, we contacted two financial experts to highlight the most strategic ways to support this sizable amount. Their wisdom may surprise you.
“The short answer is it depends,” says Sylvia Kwan, chief investment officer at Ellevest. “The best place to invest now depends on your financial situation and goals. That said, if you have high-interest debt, you shouldn’t be investing; you should pay down your debt.”
Firstly, it is crucial to address any high-interest debt. With the current interest rates at their peak in recent years, this is a shared sentiment among experts. Following this, Kwan advises building a fully liquid emergency fund that covers three to nine months of expenses in a bank, savings, or money market fund. This fund can earn you a 4 to 5 percent return in a money market fund. Rob Williams, managing director of financial planning and wealth management at Schwab, concurs, highlighting the stability and earning potential of money market funds.
Once your debts are settled, and your emergency fund is established, the next step is to consider the timeline for when you’ll need the funds. For short-term needs, such as a home down payment within a year, Kwan suggests looking into Certificates of Deposit (CDs) and Treasury Bills (T Bills) to capitalize on the high yields. For one to five years, Williams and Kwan recommend a diversified portfolio of stocks and bonds.
Stocks and bonds, while potentially lucrative, do come with their associated risks. Williams explains that while bonds have become attractive due to inflation, their returns are not fixed and can fluctuate. On the other hand, if given enough time and research, stocks can offer substantial growth and appreciation, though they are also subject to value depreciation.
Another viable option for diversification is exchange-traded funds (ETFs). Kwan explains that ETFs often correlate with inflation and offer a bundle of assets that can be bought and sold, potentially lowering risk. Williams emphasizes a diversified portfolio’s efficiency and low cost, including ETFs and mutual funds for long-term investors.
Despite the high-interest rates, real estate investment remains an option for the right individual. As Williams explains, it can be a significant part of one’s net worth and balance sheet. This is especially true if you have a good credit score to borrow the balance after your down payment and plan on holding the asset for at least three to five years.
Kwan concludes with two key points. First, the most significant mistake one can make is inaction. Time, as she states, is your ally. Second, investors should not be swayed by the latest trends or headlines, as these can often be distractions from the long-term, stable investments that have historically proven successful.
Whether you are a seasoned saver or a new recipient of a substantial amount, the path to successful investing is straightforward. Tackling high-interest debt, establishing an emergency fund, and strategically investing based on your timeline and risk tolerance are critical steps in maximizing your return. Remember, the goal of investing is not excitement but rather the long-term accumulation of wealth. Take the first step, and let time work in your favour.
