Smart Strategies To Turn $2K Into $4K

Investing $2000 can be a little overwhelming, with many platforms and investment vehicles to choose from. It's important to consider your financial goals and risk tolerance when deciding how to invest. Here are some options to get you started:

- Stocks and Exchange-Traded Funds (ETFs): $2000-$3000 is a good amount to start investing in stocks or ETFs. The S&P 500 Index has historically averaged an 11.29% return, or 7-8% adjusted for inflation. You can choose individual stocks or diversify by investing in an ETF, but you'll need a brokerage account first. eToro is a great option with an intuitive interface and educational resources.

- High-Yield Savings Account: Instead of letting your money sit in a regular savings account with a low rate of return, consider a high-yield savings account. Axos Bank's Axos ONE account, for example, offers a 4.53% APY as of late 2024, which is more than 10x the national average.

- Pay off High-Interest Debt: If you have any high-interest debt, such as credit card debt, paying it off with your $2000 can save you hundreds of dollars in interest per year.

- Invest in Yourself: Consider using the money to improve your skills, whether through courses, classes, certifications, or books. This can ultimately increase your income and improve your quality of life.

- Invest in Art or Real Estate: If you're looking for alternative investments, you can consider investing in fine art through platforms like Masterworks or in real estate through apps like Fundrise.

- Retirement: Investing in your retirement fund, even with a small amount like $2000, can be a smart move, especially if you have a long time horizon. At an 8% annual return, your $2000 could grow to $25,157 in 30 years.

- Cryptocurrency: While it's a volatile investment, cryptocurrency can be a good option if you're willing to take on the risk and already have a balanced portfolio.

Remember, you don't have to invest all your money in the same place. Diversifying your investments can make you feel more secure, but be sure to meet the minimum investment requirements for each account or platform.

Invest in stocks and ETFs

Investing in stocks and exchange-traded funds (ETFs) is a clear way to enter the world of investing. The S&P 500 Index has historically averaged an 11.29% return, which is 7-8% when adjusted for inflation. Reinvesting any dividends made will increase this return.

$2,000-$3,000 is a good amount to get started with. You can either choose individual stocks or diversify by investing in an exchange-traded fund (ETF), which is a basket of stocks all rolled into one ticker.

Before you start investing, you'll need to open a brokerage account. Not all investment accounts are the same—some charge fees or have minimum amounts required to start investing. For example, many brokerage accounts require at least $2,000 to start building a portfolio. When it comes to choosing a brokerage account, consistency is key. It's important to keep the money in the account even if the account is experiencing volatility.

EToro is a good option for a brokerage account. It has an intuitive, easy-to-use interface and plenty of tools and educational resources. It also has a unique CopyTrader program that lets you automatically copy the trades of top investors. With eToro, you'll gain access to thousands of stocks and ETFs, as well as the ability to invest in crypto.

When choosing individual stocks, it's important to hold a diverse array of large-, mid-, and small-cap funds, growth and value funds, bond funds, domestic funds, and funds focused on international and emerging markets. If you're a beginner, a single fund may be enough to meet your diversification needs in the early stages.

ETFs are a good option if you're looking for something more hands-off. They typically have less turnover of underlying assets, making them more tax-efficient.

Get a high-yield savings account

Getting a high-yield savings account is a great way to invest your money. Here's why:

High-yield savings accounts are a type of federally insured savings product that earns rates that are much better than the national average. They can earn more than 4%, though most are now around 4%. By comparison, the national average rate is 0.42%.

With a high-yield savings account, your balance can grow faster over time than it would in an average savings account. This is without any additional effort on your part. Your money is working harder for you in a higher-rate account.

Look for accounts that have high interest rates and low service charges. You want to make sure you don't have to pay a fee each month. Some institutions don't charge monthly fees, while others will waive them if you meet a balance minimum.

Be willing to look beyond the larger, well-known banks. Many smaller institutions — including online banks and apps — feature good rates and low deposit requirements.

Pros and cons of high-yield savings accounts

Here's a look at the benefits and drawbacks of typical high-yield savings accounts compared with other ways to grow your funds:

Pros

• Earns higher rates than other savings accounts.
• Is a deposit account, so it has federal insurance (unlike investments).
• Can usually be opened online, without the need to leave your home.

Cons

• Sometimes requires a higher minimum opening balance compared with regular savings accounts.
• While they can be opened online, some are online-only, so face-to-face customer service is not an option.

The best high-yield savings accounts

• American Express High Yield Savings Account
• CIT Bank Platinum Savings
• Capital One 360 Performance Savings
• UFB Portfolio Savings
• Openbank High Yield Savings
• Barclays Tiered Savings Account
• Discover Online Savings
• EverBank Performance Savings
• Forbright Bank Growth Savings

Pay off high-interest debt

Paying off high-interest debt is a crucial step in achieving financial freedom and security. Not only does it improve your cash flow, but it also has a positive impact on your mental well-being and overall quality of life. Here are some strategies to help you tackle your high-interest debt effectively:

• Make more than the minimum payment: Paying only the minimum amount on your credit card balances will reduce your overall debt but will cost you more in interest in the long run. Aim to pay more than the minimum each month to make a significant dent in what you owe.
• Use the debt avalanche repayment method: This approach targets high-interest debt first. Rank your debts in order of interest rate and focus on repaying the one with the highest interest rate. Then move on to the debt with the next-highest interest rate, and so on. This method helps you save money in the long run by reducing the amount of interest you pay over time.
• Consider debt consolidation: If you have multiple sources of high-interest debt, debt consolidation can help. It involves combining several existing debts into a single new loan, ideally with a lower interest rate and more favourable repayment terms. However, be sure to research your options carefully and ensure that the new loan will save you money in the long run.
• Prioritize delinquent accounts: If you have any overdue debt, start by addressing those accounts first. Delinquent accounts can significantly impact your credit score, so it's crucial to make them a priority when creating your debt repayment plan.
• Focus on high-interest debt: Some debts, like personal loans, have fixed interest rates, while others, like credit cards, have variable rates. Variable rates can fluctuate with market conditions, making it harder to pay off the debt. By prioritising debts with higher interest rates, you'll save money in the long run.
• Utilise a balanced approach: If tackling your largest debt feels overwhelming, consider a balanced approach that suits your specific circumstances. You can incorporate any of the above strategies in whichever order works best for you. The key is to develop a sustainable plan that keeps you motivated and disciplined throughout the payoff process.

Remember, consistency is key when it comes to paying off high-interest debt. Make it a goal to consistently make at least the minimum monthly payments and pay more whenever possible. Additionally, avoid charging new debt, and regularly check your credit reports and scores to monitor your progress.

Invest in artwork

Artwork is a good alternative investment to pair with a traditional stock portfolio. It has historically high returns and is uncorrelated with the stock market, which helps diversify your investments.

The primary drawback to art investing is that it used to be hard to get into. However, the rise of online art investing platforms has made it more accessible to everyday investors.

Art investments add diversification to your investment portfolio and could potentially produce high returns. One of the best reasons to invest in art is that it is uncorrelated with the stock market. That means that it is unlikely for both your stock investments and your art investments to be down at the same time.

Having both art and stocks in your portfolio smooths out your returns over time and reduces your portfolio’s overall volatility, which is good for peace of mind and predictability.

Blue-chip artwork has historically returned hundreds to thousands of percent. Even without astronomical returns, a well-selected collection of art investments tends to outperform stocks. For example, the Artprice100 Index has gained 360% since 2000, while the S&P 500 has returned about 247% over the same period.

If you want to invest in artwork the traditional way by purchasing art directly, you will need to find pieces for sale by contacting art dealers and auction houses. You will then need to figure out which pieces might be good investments, for which you will likely need to hire an art expert.

Art investing is more labor-intensive than stock investing. It is also more expensive. You can invest in art from emerging artists for a few hundred or thousand dollars, but these pieces are unlikely to appreciate. Art from established artists will be much more expensive, typically in the $10,000 to $100,000 range.

If you buy art at an auction, you will have to pay an additional 10% to 25% on top of the price of the piece. You will also need to store the artwork in a specialised facility with climate controls and round-the-clock security.

The safest and easiest way to get started investing in artwork is to use an online art investing platform like Masterworks, Public, or Yieldstreet. These platforms let you invest in shares of art instead of purchasing pieces outright, making art investing more accessible.

Invest in real estate

Real estate is a powerful strategy to build wealth, even with an initial investment of $2,000. Here are some ways to get started:

Real Estate Investment Trusts (REITs)

REITs are a practical way to invest in real estate with a small amount of money. They allow you to buy shares in commercial real estate portfolios, giving you access to properties like shopping malls, office buildings, and apartments without the hassle of managing them yourself. REITs typically pay out a significant portion of their income as dividends, providing a regular income stream and making them attractive for investors seeking both growth and income. With $2,000, you can start building a diverse real estate portfolio through REITs.

Crowdfunding Platforms

Crowdfunding platforms, such as Fundrise, allow you to invest in real estate with a small initial investment. Fundrise, for example, has a minimum investment of just $10. Your money is pooled with other investors, and the platform handles the property management. This option provides an accessible way to get into the real estate market without the high costs of purchasing a property directly.

House Hacking

House hacking involves purchasing a multi-family property, such as a duplex or triplex, and living in one unit while renting out the others. This strategy provides you with a place to live and generates rental income to cover your mortgage and other expenses. With $2,000, you may be able to cover the down payment and closing costs for a small multi-family property, especially if you use an FHA loan, which requires a low down payment of around 3.5%.

Rent-to-Own Deals

Rent-to-own deals are another option for real estate investors with limited capital. In this arrangement, you lease a property to a tenant with the option to purchase it after a set period. You can use your $2,000 for a down payment or to secure favourable lease terms. This strategy provides the dual advantage of generating rental income and the potential to sell the property at a higher value in the future.

Owner Financing or Seller Financing

Owner financing, also known as seller financing, is when the property's seller acts as the lender. This method can be advantageous for investors with limited funds, as it often requires a lower down payment than a traditional mortgage. You can negotiate loan terms, including the interest rate, repayment schedule, and duration, allowing you to devote your limited funds to a down payment and any necessary repairs or improvements.

While investing in real estate with $2,000 may seem challenging, these strategies can help you get started. Remember to do your due diligence, assess your budget and investment goals, and consider seeking advice from a financial advisor to build a personalised real estate portfolio.

Frequently asked questions