Where to Invest $10k for Growth in 2022

October 15, 2021

Got $10,000 burning a hole in your bank account? It could happen! Maybe you just sold your house and moved to a cheaper place. Maybe you just sold your car because you’re switching to public transportation. Maybe you got a bonus.

Either way, you’re smart with your money. And when that $10,000 hits, you want to find smart ways to invest it (preferably before Uncle Sam taxes you on it as income).

Here’s how you should invest $10,000 in 2022.

Know Your Goal

Before you invest a single red cent, you have to know what you’re investing toward. Some common financial goals include:

  • Saving for retirement
  • Sending a kid to college
  • Paying off debt
  • Building an emergency fund

All of these goals have different priorities, timespans, and options. If you’re saving to send a kid to college, for example, most parents will make use of a 529 plan. This gives you a fixed timeline (around 18 years, give or take) and certain options to pursue it, with tapering risk as you approach the deadline.

On the other hand, if you’re trying to build an emergency fund, you need that money to be somewhere safe (FDIC-insured), liquid (easily accessible in an emergency), and preferably earn a little interest on the side. This is completely different from a retirement account, which will grow for decades plural without being touched.

Figure out what you’re investing for. That will make it much easier to figure out where to go next.

Pay Off Debt

Wait, aren’t we talking about investing? Well, if you want to grow your money, it helps if you’re not losing it every month.

Think of debt as investing’s evil twin. Investing grows your money over time. Debt eats away at your money over time. Also, like investing, debt is subject to compounding interest—look at the interest rate on your debt and you’ll understand why. This is how you can pay off $40k of a $40k loan and only be halfway done (depending on how much you throw at the loan each month).

So if you want to grow your money, canceling out your debt should be your first priority.

Max Out Your Retirement Account

If you’ve got your debt situation under control, it’s time to turn to your retirement accounts. For most people, this means your work-sponsored 401(k) or a similar plan.

A work-sponsored retirement plan is the beautiful meeting place of guaranteed returns and free money. At least, in the form of an employer matching contribution. This is when your employer matches your retirement contributions up to a certain percentage, which basically means you get free money tacked onto the money you take from your salary each month.

Here’s the catch: you can’t make a lump-sum $10k deposit into your retirement account, so you’ll have to get creative. Fortunately, there’s an easy workaround. Toss the $10k in a savings account, set your monthly contribution to the maximum, and then repay yourself whatever extra is taken from your paycheck using the $10k.

Add an IRA (Even If You Have a Retirement Account)

If you’ve already maxed out your retirement account, or if you don’t have an employer-sponsored account, let this $10k be your invitation to the wonderful world of IRAs.

An individual retirement account, or IRA, is a type of tax-advantaged retirement account that basically serves as a tax-protected wrapper for a huge array of investments. You can dump almost any investment in an IRA, and the account lets those investments grow without tax interference.

Most people choose between two types of IRAs: traditional or Roth. A traditional IRA allows you to contribute pre-tax money to grow tax-deferred until you make withdrawals in retirement, which is handy if you expect to be in a lower tax bracket in retirement. A Roth IRA allows you to contribute with after-tax money, which means you’re not taxed once you make withdrawals in retirement.

Mirror the Market with Index Funds

If your retirement accounts and debt are in good shape, it’s time to try your hand at some new investment options. With a spare $10k sitting around, this is a great time to get started in index funds.

Where most investments try to beat the market, index funds try to be the market (a segment of it, anyway). An index fund is a type of mutual fund or exchange-traded fund (ETF) constructed to mimic or match a component of the financial market. The Standard & Poor 500 Index, for example, tracks 500 of the largest publicly traded companies in the U.S.

When you buy into an index fund, you buy stocks in every company tracked by the index, which means instant diversification. That way, if any individual company tumbles, you won’t lose everything in your portfolio. Plus, you don’t need to worry about selecting stocks on your own—you do that when you select the index fund.

Index funds offer a great low-risk diversification option, though they do require a higher initial investment than some other options—after all, you buy into every company in the index. That’s why your $10k windfall is a good boost to get started.

Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.