Smart Places To Invest $2K Right Now

Investing $2,000 can be a great first-time investment. It can open up a lot of options that are not available to those who have less to invest.

There are many investment options, including high-interest savings accounts, exchange-traded funds (ETFs), stocks, bonds, real estate, and more.

Before investing, it's important to assess your financial situation and goals. Do you have any high-interest debt that should be prioritised? Do you have an emergency fund in place? What is your risk tolerance, and what is your investment time horizon?

Once you have a clear understanding of your financial position and goals, you can choose the best investment account and strategy for your $2,000.

Invest in a 401(k)

If you have a full-time job, investing in a 401(k) is a great option. A 401(k) is a retirement savings account that allows you to divert a portion of each paycheck into long-term investments. It is a qualified retirement plan, meaning it is eligible for special tax benefits.

• Your employer may match part of your contributions as a job benefit. This is essentially free money, so it's a good idea to contribute at least enough to take full advantage of your employer's match.
• There are limits to how much you can contribute to a 401(k) each year. In 2024, the maximum amount of salary that can be deferred to a 401(k) is $23,000, with an additional catch-up contribution of up to $7,500 for individuals aged 50 and older.
• You can choose how to invest your 401(k) funds from a range of options provided by your employer. These typically include various mutual funds, such as index funds, large-cap and small-cap funds, foreign funds, real estate funds, and bond funds.
• It's important to understand your risk tolerance when choosing how to invest your 401(k) funds. A common rule of thumb is to subtract your age from 110 or 100 to determine the percentage of your portfolio that should be invested in stocks (equities) versus bonds.
• Fees can have a significant impact on your investment returns over time, so it's important to consider the expense ratios of the funds you choose. Opt for low-cost index funds or ETFs whenever possible.
• You can increase your contributions over time, especially when you get a raise or bonus, to boost your retirement savings.

Open a taxable brokerage account

A brokerage account is an investment account used to purchase investments such as stocks, bonds, mutual funds, and ETFs. There are two main options for where to open a brokerage account: online brokers and robo-advisors. Both offer retirement accounts and taxable brokerage accounts.

• Determine the type of brokerage account you need: If you want to invest for a rainy day or for a short-term goal, a traditional brokerage account is suitable. These accounts don't have tax advantages, but you are free to withdraw your money whenever you like. On the other hand, if your goal is to save money for retirement, an individual retirement account (IRA) is the best bet.
• Compare the costs and incentives: Review each brokerage firm's fees, especially if you plan on trading anything other than stocks. Many brokers also offer incentives to attract business.
• Consider the services and conveniences offered: Access to research, foreign trading, fractional shares, trading platforms, and convenience are some of the services to consider when choosing a broker.
• Decide on a brokerage firm: Weigh the pros and cons of each brokerage firm based on your investment objectives.
• Fill out the new account application: You can apply to open a new account online. You'll need some identifying information, such as your Social Security number and driver's license. You may also need to provide information on your employment status, net worth, investment goals, and expected yearly income.
• Start researching investments: Spend some time learning the basics of how to choose stocks, bonds, and/or funds, as well as how to create a well-diversified portfolio that aligns with your goals and risk tolerance.

It's important to note that brokerage accounts are taxable accounts. Investment income within a brokerage account, such as profits from selling your investments, is subject to capital gains taxes. Therefore, it's generally not wise to invest money you need within the next five years.

• There is no limit on the number of brokerage accounts you can have or the amount of money you can put into a taxable brokerage account each year.
• Many brokerage firms allow you to open an account with no upfront deposit, but you will need to fund the account before making any investments.
• You own the money and investments in your brokerage account and can sell investments at any time.
• If you're not sure where to start, consider using a robo-advisor platform, which provides a well-diversified portfolio based on algorithms and your financial goals.

Use a robo-advisor

If you don't want to handle the research of picking your own stock and bond investments, and with a $2,000 investment, most financial planners will not want to bring you on as a client, you can get your investing done for you through a robo-advisor.

Robo-advisors are a great way to automate your investing. They use algorithms to provide automated investment services without human interaction. They gather information about your investing goals, risk tolerance and time horizon, and use an algorithm to determine an appropriate asset allocation and build an investment portfolio tailored to your situation.

Robo-advisors are a good option if you want to be hands-off with your investments and don't have a complex financial situation that requires a direct relationship with a human financial advisor. They are also a more affordable option, as they charge lower fees than traditional financial managers.

• Betterment: Betterment is one of the top robo-advisors. It only takes a few minutes to answer questions to assess your investment risk tolerance to get started. Once they have that information, you just deposit money and the platform handles all the investing, re-balancing, and tax adjustments for you. Betterment is able to help all kinds of investors, whether you start with $100 or $100,000.
• Wealthfront: Wealthfront is the best overall robo-advisor due to its vast customization options, fee-free stock investing, low-interest rate borrowing, dynamic tax-loss harvesting, and other key features. It has a low required minimum investment of $500 and offers customizable automated portfolios.
• Vanguard Digital Advisor: Vanguard Digital Advisor is an affordable robo-advisory service that uses Vanguard's ETFs to create a personalized retirement plan and portfolio. It doesn't offer much portfolio customization or access to a human advisor.
• SoFi Automated Investing: SoFi Automated Investing offers free investment management and access to financial advisors and career counsellors. It has a low minimum investment of $1 and is a good choice for beginning and younger investors. However, it has limited tax strategy and no socially responsible portfolio.

Pay off high-interest debt

If you have $2000 to invest, one of the best things you can do with it is to pay off any high-interest debt. Credit cards, personal loans, and private student loans tend to have the highest interest rates, with credit cards often ranging between 15% and 30% and personal loans between 10% and 29%. This kind of debt can be very expensive to carry and challenging to pay off, so getting rid of it should be a priority.

High-interest debt can pose significant challenges to your financial well-being. The higher the interest rate, the more expensive your debt is likely to be over time and the longer it will take to pay it off. Compound interest, which is common with credit card debt, occurs when interest is added back to your principal balance at the end of a set cycle, causing your debt to build quickly and become more difficult to manage over time.

If you're working to pay off high-interest debt, here are some strategies you can use:

• Make more than the minimum monthly payment. Paying only the minimum will likely cost you more in interest in the long run, and your balance may even increase due to compounded interest.
• Use the debt avalanche repayment method. Rank your debts in order of interest rate and focus on repaying the highest-interest debt first. Then move on to the debt with the next-highest interest rate, and so on. This method can help you save money in the long run by reducing the amount of interest you pay.
• Consider debt consolidation. If you have several sources of high-interest debt, you can combine them into a single new loan with a lower interest rate and more favourable repayment terms. However, be sure to research your options carefully and feel confident that your new loan will save you money. Many debt consolidation loans come with introductory fees, and opening a new credit account could negatively impact your credit score.
• Use a balance transfer credit card. These cards allow you to transfer your unpaid balance to a new credit card with an introductory period of up to 21 months of interest-free payments. Just be sure to have a plan to pay off your entire balance before the introductory period ends.
• Refinance your loan. If your credit score has improved since you took out your loan, you may be able to refinance with a lower interest rate and a new repayment term.

Remember, the wisest thing you can do with your money is to eliminate high-interest debt. Once you've paid off your debt, you can then budget your money and begin to save and invest.

Invest in real estate

If you're looking to invest $2k in real estate, there are a few options available to you.

One option is to use a real estate crowdfunding platform. These platforms allow investors to pool their money and invest in large-scale real estate projects, often with a lower initial investment than traditional real estate ventures. For example, Concreit allows investors to invest in real estate debt and receive mortgage interest payments from borrowers weekly.

Another option is to partner with friends or family members to invest in a property. By pooling resources, you can increase your purchasing power and invest in higher-end properties. Additionally, you can split up duties such as maintenance and rental management, reducing the workload for each investor.

You could also consider investing in a small multifamily unit and living in one unit while renting out the others. This strategy can provide a steady source of passive income and may qualify you for owner-occupied financing, which often requires a lower down payment than traditional investment property loans.

Retirement accounts, such as self-directed IRA or 401(k) plans, can also be used to invest in real estate. These accounts allow for a diverse investment portfolio, including stocks and other alternative options. However, it's important to consider the fees and regulations associated with these accounts before investing.

For a lower-risk option, you could invest in REITs (real estate investment trusts). REITs allow individuals to buy and sell ownership shares in a portfolio of properties, often including residential and commercial buildings. By law, REITs must distribute at least 90% of their income to investors, often in the form of dividends.

Finally, you could consider becoming a private money lender. With as little as $20k, you can lend money to property buyers or developers in exchange for interest rates that are often higher than traditional mortgages. However, it's important to carefully vet potential borrowers and analyse their projects before committing any funds.

Frequently asked questions