Where to Invest $100, $1,000, $10,000 or More

Sometimes a little lump sum unexpectedly drops into our laps — a tax refund, a gift, a bonus from work. After doing a little happy dance and maybe buying yourself a treat, take advantage of your good luck and use that money to make your financial situation even better.

One great way to do that? Invest the money for your future. If you take $100, $1,000, $10,000 — or any amount — and you plunk it into an investment portfolio that earns 7% annually, you’ll double your money in 10 years. (This neat little trick is known as the Rule of 72. Look it up!)

The good news these days is that $100 is more than enough to get started investing. Many brokers now offer no-minimum-balance accounts and access to fractional shares. You can start investing with just $5.

In this article, we’ll talk about five ideas for investing your lump sum. But before we go there, let’s take a step back and talk about your big-picture financial outlook. Because before you invest, it might make sense to pay some attention to other money areas in your life.

Here are two preliminary steps on your path to using your new cash stash as a force for good in your financial life:

• Pay off high-rate debt, like credit cards

If you use this money to make a dent in your credit-card debt, you’ll enjoy a guaranteed rate of return equal to the interest rate you’re paying on that debt. Plus, it will feel so good once you stop paying those exorbitant interest charges every month.

• Build up emergency savings

It’s a super smart move to make sure you’ve got some cash set aside for unexpected and infrequent expenses. That way, when, say, the car breaks down, you can pay for the repairs using your credit card, but then you can immediately pay that credit card bill off — before you get slammed with those painful interest charges.

When stashing your emergency savings, a bank account is your best bet: you want that money available when you need it. But! Not just any bank account. Be sure to look for a high-yield savings account. Check out our roundup of the best high-yield savings accounts.

Two great steps to take before you invest: Pay off high-rate debt and build some emergency savings.

5 ways to invest your money

All righty then. You’ve got those preliminary steps locked up, and you’re ready to put your money to work for you. Below are five ideas for investing your lump sum.

Keep in mind: We here at investor.com like investing, because it’s one of the most powerful ways to build wealth. The stock market has returned an average annual 10% return over time.

Of course, that average masks a lot of ups and downs each year. If you’re an active investor, ready to take the time and energy needed to research the factors that contribute to the market’s volatility, and then picking investments you predict will gain under those conditions, then you’ll be keeping an eye on that volatility and, ideally, making it work for you.

But if you’re a passive investor, seeking a more set-it-and-forget-it approach, then you’ll only want to invest money that’s serving your long-term goals — that is, money you won’t need to withdraw for at least five years. Read more about trading vs. investing, aka active vs. passive investing.

1. Open an IRA

Using your lump sum to fund an individual retirement account (IRA) can be a great way to supercharge your retirement savings.

An IRA offers tax breaks to reward you for saving for retirement. There are different types to choose from (read all about them in our retirement planning guide), but the two main flavors are traditional IRAs and Roth IRAs. The traditional IRA gives you a tax break every year you make a contribution, while the Roth IRA rewards you with tax-free withdrawals once you’re in retirement. Here’s more on how to choose between a Roth IRA and a traditional IRA.

Keep in mind that…

• You must have “earned income” to contribute to an IRA — “earned income” means wages, salary, money from work. The maximum annual IRA contribution is the higher of your earned income or $6,500, in 2023. If you’re 50 or older, you can contribute an extra $1,000.
• You’ll need to pick a broker, so read our top picks for best brokers to open an IRA on our sister site StockBrokers.com.
• Once you’ve opened an IRA at a broker and transferred money into your account, you’ll need to pick investments. For a look at some easy-peasy retirement portfolios, check out our story on how to invest for retirement. If you’re thinking about investing in individual stocks, check out our stock market education guide on sister site StockTrader.com.

2. Open a brokerage account

Maybe you don’t like the restrictions that retirement accounts come with. Fair enough. A regular brokerage account might be perfect for you. (We detail the best brokerage accounts over on our sister site, StockBrokers.com.)

Once you open a brokerage account, you can use your money to either:

• Build a diversified investment portfolio with just one or two mutual funds or ETFs. For example, many mutual fund companies offer a total stock market index fund. With just one share of that fund you’ll own a tiny piece of every single publicly traded company in the U.S.

Or…

• Create a portfolio of individual stocks. Maybe you’re an Apple fanboy? A devout believer in Meta’s growth prospects? It’s easy these days to take a small amount of money and buy fractional shares of a company. < li>

Or you can do a combination of the above, creating a diversified investment portfolio as well as concentrating some of your money in an individual stock or three or 10. Just remember that heavy concentrations in any one company, industry or sector can lead to outsize risks, and that can mean losing money if you need to sell when your investments have lost value.

3. Invest with a robo-advisor

If even just thinking about the idea of investing your money ratchets up your anxiety to red-alert levels, but you’re torn because you know investing is a smart move for your money, no worries. A robo-advisor may be the answer for you.

Many traditional brokers now offer robo-advisors, which basically operate on the idea that the vast majority of passive investors don’t need to pay a lot of money for specialized investment advice and instead can be served by one of a handful of standardized investment portfolios. When you open an account at a robo-advisor, you’ll answer some questions about how much risk you’re OK with, and then they’ll invest your money for you in an investment portfolio suitable to your risk tolerance.

Robo-advisors charge fees — 0.25% of your account balance is fairly standard, but be sure to shop around — in exchange for handling the investing for you. In addition to creating portfolios for different levels of risk tolerance, robo-advisors will rebalance your portfolio over time if gains in one asset class push your asset allocation out of alignment.

And that’s it — go ahead and check “invest for the future” off your to-do list.

4. Increase your savings rate in your workplace retirement plan

Got a 401(k) or another workplace plan? If your sole investing goal is to max out your retirement savings so you’ll, you know, be able to retire one day, then consider this: Stash your lump sum in your bank account in order to ramp up how much you’re saving in your workplace plan.

In other words, the lump sum is stashed in a bank account, and then you tell your company you want to increase your retirement-plan contribution rate. The lump sum in your bank account will help cover your living expenses now that your higher retirement savings rate will reduce your paycheck a little.

If you go this route, why not put your lump sum in a high-yield savings account to earn some money on your money?

5. Increase the risk — and potential returns — in your investment portfolio

Maybe you’ve already got a workplace retirement plan and an IRA, and possibly a brokerage account too. This fresh stash of cash burning a hole in your pocket could give you the freedom to explore some lesser-known investment opportunities.

Maybe an emerging markets ETF? A real estate investment trust? An up-and-coming tech stock? This windfall might be just the opportunity you needed to take on some riskier bets. Take that bull by the horns.