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Written by Andrea Coombes
Edited by Carolyn Kimball
Fact-checked by Dayana Yochim
Sometimes a little lump sum unexpectedly drops into our laps — a tax refund, a gift, a bonus from work. This is a great opportunity to take advantage of your good luck and use that money to improve your overall financial situation.
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.
Is $100 enough to start investing?
Yes, $100 is more than enough to get started investing. Many of the best stock brokers now offer no-minimum-balance accounts and access to fractional shares. You can start investing with just $5.
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What to do before investing
In this article, we’ll talk about five ideas for investing your lump sum. But first, let’s take a step back and talk about your big-picture financial outlook. Before you invest, it might make sense to use your money to pay off debt and build up your savings.
- Pay off high-rate debt, like credit cards. If you 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 good to stop paying exorbitant interest charges every month.
- Build up emergency savings. It’s a smart move to make sure you’ve got some cash set aside for unexpected and infrequent expenses. When stashing your emergency savings, a bank account is your best bet: you want that money available when you need it. Be sure to look for a high-yield savings account.
5 ways to invest your money
You’ve got those preliminary steps locked up, and now you’re ready to put your money to work for you. Here are five ideas for investing your lump sum.
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 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.
More on IRAs
- 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 $7,000, in 2025. 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 the best IRA accounts.
- 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 guide on how to invest in stocks.
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. (Check out our picks for the best online stock brokers.)
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.
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.
Dive deeper: Read more on how to invest and see our list of best brokers for stock traders.
FAQs
What is diversification?
You’ve probably heard that diversification is important when you invest. But what is diversification, exactly? And why should we care? Diversification is essentially investor-speak for “don’t put all of your eggs in one basket.”
Diversification is all about spreading our money around to different types of investments. Building a diversified portfolio helps protect our money in times of volatility.
A diversified portfolio can be built many different ways. You can diversify:
- …across companies, so instead of putting all of your money into, say, Apple shares, you own Apple, Alphabet and Meta.
- …across industries, so instead of all-tech, you own tech stocks, consumer staples stocks, travel stocks, and so on.
- …geographically, by owning U.S. companies plus companies in emerging and/or developed markets elsewhere.
- …by company size, owning shares of small-cap, mid-cap and large-cap companies (“cap” refers to market capitalization, aka the company’s total number of shares multiplied by its share price).
- …across asset classes, so not only do you own stocks, but also bonds, maybe even real estate, commodities and crypto.
- …across time, e.g. buying shorter-term vs. longer-term bonds.
- …across risk, e.g. lower-risk government debt vs. higher-risk corporate bonds.
But building a diversified portfolio can be way easier than researching and buying all of those individual investments yourself. Here are a couple of super easy ways to build a diversified portfolio:
- Buy a target-date fund, that is, a fully diversified portfolio in one fell swoop.
- Buy a handful of mutual funds, such as a total stock market fund, a total bond market fund, maybe some type of international fund and/or real-estate sector fund. You can use traditional mutual funds or exchange-traded funds (ETFs). A mutual fund or ETF gives you exposure to potentially thousands of companies with one single share, making diversification easy-peasy. Read more about mutual funds or ETFs.
One more thing: Do you know the difference between diversification and asset allocation? Diversification is spreading your money around to different types of investments to reduce risk. Asset allocation is deciding how much of your money to invest in each type of investment.
Bottom line: Diversification is about investing in a way that reduces your exposure to any one company, asset or sector’s risk. That can help protect your investment portfolio in times of volatility. You can build a highly diversified portfolio with two or three index mutual funds or ETFs.
Real talk about diversification...
The sad truth is that diversification is not a perfect science. Diversification can help mitigate specific risks related to companies, industries and asset classes. It usually doesn’t help with systemic risk, such as a major economic meltdown during which everything might drop in value.
Even with a diversified portfolio, you can and likely will see the value of your investments drop at times. Notice that I didn’t say, “You will lose money.” Because you will only lose money if you end up needing to sell your investments when they’ve dropped in value. That’s why investing is, for most of us, better played as a long-term game — you want time on your side so you can hold onto your highly diversified portfolio until it gains value again.
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About the Editorial Team
Andrea Coombes has 20+ years of experience helping people reach their financial goals. Her personal finance articles have appeared in the Wall Street Journal, USA Today, MarketWatch, Forbes, and other publications, and she's shared her expertise on CBS, NPR, "Marketplace," and more. She's been a financial coach and certified consumer credit counselor, and is working on becoming a Certified Financial Planner. She knows that owning pets isn't necessarily the best financial decision; her dog and two cats would argue this point.
Carolyn Kimball is a former managing editor for StockBrokers.com and AdvisorSearch.org (formerly investor.com). Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.
Dayana Yochim is a former Senior Writer/Editor at Reink Media Group who has written about personal finance and investing for more than 20 years. Her work has appeared in outlets including HerMoney.com, NerdWallet and the Motley Fool, and has been syndicated nationally. Dayana has also been a guest expert on "Today" and Good Morning America.