How To Invest 5000 Dollars

Being a new investor means that you’re looking to maximize your money and build up a portfolio. But depending on your level of risk tolerance and your financial goals ultimately depend on what investments you’re going to make.

How To Invest 5000 Dollars

Today we are going to look at some of the best ways to invest $5,000 of savings, and how you can put the money to better use as opposed to letting it sit in your bank account, where it will be losing value.

If you’ve been prudent with your finances which has allowed you to save up some money and all of your other financial goals are taken care of, then it’s time to diversify your income and put this money to use.

Here are some of our favorite options for small-time investing.

Paying Off Debt

Before jumping head first into the world of investing, the mandatory first step before doing anything is that you pay off any debts that you have. This includes credit card debts, loans, or high-interest debts.

Take the time to do this as the notion of having to have a credit card on a 20% interest rate as payoff will lock in a 20% rate of return.

And as there are no investments where you’ll be able to earn anything close to 20%, you should not overlook this step.

The major benefit of looking to pay off your debt is that it will take a weight off your shoulders, and allow you to solely focus your time on diversifying and creating a portfolio of investments.

Now that we’ve covered this important step, here are some of our favorite options for spending $5,000. 

Roth IRA

A Roth IRA is a long-term account that will mean you pay taxes ahead of time. The benefit of using one of these instead is a stable long-term option, that is ideal for young investors for tax planning ahead in the future.

A recommendation is to save around 30% of your $5,000 as well as your income moving forward into retirement accounts, so they have a safety buffer for when you finally want to give up the day job.

This is the best option for those that have a lot of time on their hands, and want to consider their finances way ahead of time.

Money Market Accounts (MMAs)

A money market account is a savings account with some added convenience that closely resembles a checking account.

Typically MMAs are going to be suitable for savers with a much larger deposit, say over $10,000, which the bank will also reward you with a high-interest rate.

Also, it is worth considering if you have an associated credit card or check writing ability, though it’s recommended that you do not use these regularly.

Therefore, this might be one of the last options you try and may be suited for those with a higher yield of potential investments.

Robo-Advisory Services

This is a great option for those that are new to investing because a Robo-advisory service will handle all of the hard work for you.

You will typically go through several questions that will assess your potential risk tolerance and what your investment goals are for the long term.

How To Invest 5000 Dollars (1)

You will then receive a bespoke investment portfolio that aims to be as diversified as possible, and all you need to do is put the money in regularly.

These funds will then be distributed across the recommended investments without you having to do anything.

For the ultimate in automated investing, this is the perfect option for those that want a hands-off approach to investing, and want to outsource the hard work.

Index Funds

These are types of funds that will track the performance of indices, which are usually followed up with publicly traded companies, ranging in the thousands.

They are another one of those easy diversification options that can be invested into a specific market or even an entire market index such as the FTSE or the S&P 500.

Similar to the Robo-advisory service, it’s a useful investment vehicle that is a set-it-and-forget-it option where the funds will do the business for you.

As opposed to feeling like you’re an adventurous day trader, your $5,000 will be not aiming to beat the market but rather keeping up with it.

There are also questions to consider about portfolio fund managers and where they can outperform their benchmarks, so it is a viable option for those that are not looking for the highest risk.

Certificates Of Deposit (CDs)

If you like short-term access to cash and typically see yourself investing on a short-term basis, putting your money into certificates of deposits might be your best option.

They have a maturity date that can end in 5 years that earn you a small amount of interest, and the good news is that any interest does add up. However, once you are locked into a specific maturity date then you have to be committed to this.

This is in direct contrast to money market accounts which offer more liquidity with your cash. In other words, if you need the money within five years then you should go with a liquid savings account.


Exchange-traded funds are quite similar to mutual funds, in that when you purchase a share you will purchase a percentage of an investment holding.

The difference is that it is how they are traded, where an ETF can be bought like a stock, you’ll be able to see an ETF change its price in real-time.

Whereas a mutual fund will only be transacted at the end of a trading day.

Both are viable options or investments, but depending on how you like to keep a track of your investment will depend on which option is suitable for you.

Final Thoughts

Regardless of the investments that you are looking to make, ensure that you remember that an investment is not 100% guaranteed, and there is always some risk when placing your money in one of these options.

Luke Baldwin

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