[Here's our update for 2022!].
One question I get asked quite a bit is, “What would you do if you had $___ to invest?” That number varies widely, but $25,000 is a number that is mentioned quite often, so I decided to go with that for this post.
Unfortunately, that's a hard question to answer because there are so many places that I'd want to invest that money. If I were pressed for one answer though, I'd probably put it into passive real estate investments. However, that's a personal decision based on my current situation and goals.
If you're in that situation, first of all, congratulate yourself! While most of the country struggles to save anything substantial, you've put aside some funds with every intention to put it towards building your future. Delayed gratification isn’t easy.
Trust me, when I would walk through the parking lot by Porsches, Teslas, and Bentleys, it took a fair amount of discipline to stay focused on the larger priority — financial and time freedom. And it paid off.
So, in thinking about where to put $25,000, I think it first helps to define your goals and the time frame for when you need it. I’m going to assume you don’t need to touch it for a minimum of 3-5 years. Anything shorter than that, you should put it in a safe place (minimum volatility) and with easy access (liquidity).
Here are 22 ways to invest $25,000 in 2022:
1. Pay Down Debt
Okay, I know this isn’t truly an investment, however, it is in a way a guaranteed return – you’re saving yourself from having to pay future interest on that debt.
For example, if you have credit card debt sitting there at an interest rate of 15-19%, there aren’t too many investments you can make to safely match that ROI (Return On Investment).
If you have a significant amount of student loan debt, consider refinancing if that’s an option, then weigh whether it’s better to pay down that amount or invest. For a deeper discussion, check out White Coat Investor’s post, Pay Off Debt or Invest.
Currently, debt is relatively cheap so make sure you understand your goals, your risk tolerance, and figure out what makes the most sense when it comes to handling debt.
2. Increase Your Savings – High Yield Savings Account or CD
Unfortunately, interest rates are still quite low for High Yield Savings Accounts or CDs. I still remember the days when you could easily find an online savings account that would pay you 5% APY. However, online savings accounts & CDs blow away the interest rates of brick and mortar banks. As of the time of this writing, you can get 0.5% APY, and CDs are actually quite similar. The benefit is that it is the safest place to put your money and it's backed by the FDIC up to $250,000.
However, considering the rate of inflation averages 3-4%, stashing away money in only a savings account long-term is similar to continually filling a bucket of water with a tiny leak in it. Over time, the purchasing power of that money is slowly diminishing so better to have some funds elsewhere as well.
3. Peer to Peer (P2P) Lending
It’s an option that is mentioned quite often online and I even mentioned it in 10 Perfect Passive Income Ideas for Physicians, but it’s one that I’ve become a lot less enamored with over time. The reason being that I haven’t had too much success with it.
P2P in a nutshell – people are looking to borrow money, and investors get together online and loan money to these borrowers at a predetermined rate of interest. Essentially you act as the bank or credit card company. Monthly interest payments are deposited in your bank account.
The two biggest platforms in this space are Lending Club and Prosper. Returns are touted as anywhere from 6-10% with 35.89% being the highest possible rate. Personally, I’ve seen much lower returns than promised and liquidity is poor (3-5 year holds). My biggest issue with this type of lending is that the loans are not collateralized. The borrower can refuse to pay and the worst thing that happens to them is a ding to their credit.
The Stock Market
There are so many ways to invest in the stock market but here are some of the more popular ones:
A 401k is a retirement plan sponsored by your employer. The contribution limit for individuals has been raised to $19,500 for 2021. The contribution is pre-tax, growth in the account is tax-free, and you pay taxes only when you withdraw the funds, hopefully after age 59.5, otherwise you have to pay a 10% penalty.
Some people like to fund this early on in the year as a lump sum to take advantage of a potential whole year of growth.
5. Roth IRA & Backdoor Roth IRA
In short, a Roth IRA is funded by post-tax contributions that can grow tax-free and ultimately be withdrawn tax-free after age 59.5, or again you have to pay a 10% penalty. There are exceptions for penalty-free withdrawal for certain scenarios but I won’t go into them here. Contribution limits for 2021 are $6,000 unless you’re over 50 where the limit is $7,000. There is an income limit above which you’re not eligible to contribute to the Roth IRA. 2021 – hard cap for singles at $140,000 and for married couples filing jointly $208,000.
For higher-income earners, there is something called the Backdoor Roth which allows you to still contribute by converting a traditional IRA to a Roth IRA. The good thing is you still have the option to do this for the previous tax year up until you file your taxes. For a great guide on how to do this, check out Physician on Fire's post, Vanguard Back Door: A Step-By-Step Guide.
There was a concern that the Backdoor Roth would be voted out of existence, however, it has survived for now. That doesn't mean it won't be the target of legislation in the future so you might want to take advantage of this while you can.
6. Plain Old Taxable Brokerage Account
This is any account that isn’t designated a tax-advantaged account. Personally, I use low-fee brokerage accounts such as Fidelity, Vanguard, and Robinhood. Sure you could pick individual stocks, but I agree with Warren Buffett that choosing individual stocks and trying to time the market is a losing proposition for most.
So if you’re not going to day trade and pick individual stocks, you should probably stick to broad-based, well-diversified index funds. How do you do that? Well, you can set up a three-fund portfolio like the Wall Street Physician mentions here or you can choose one of 150 Portfolios Better Than Yours. You could also use a Robo-Advisor, like M1 Finance. I don’t personally have experience with them but I can see the benefit of using them, particularly with their low fees and ability to be hands-off.
7. Health Savings Accounts (HSAs)
Many of you might have the ability to contribute to a Health Savings Account, depending on if you have a high deductible health care plan. Some of you might have heard this referred to as the Stealth IRA.
It is considered a triple tax-advantaged because you pay for it with pre-tax dollars, if you use it for health-related expenses you don’t pay taxes on it, and it’s able to grow tax-free in the account. The contribution limit has gone up in 2021, it's now $3,600 for individuals and $7,200 for families.
This is like a mutual fund that holds various real estate projects. Perfect for someone who wants exposure to the real estate market, but wants the investment to be totally passive.
They typically pay higher dividends than stocks, however, transparency is often lacking. However, it does allow for exposure to the real estate market with smaller amounts of capital and has the benefit of something called “liquidity” where you can sell relatively easily with the click of a few buttons.
9. Buy Rental Property
Unfortunately for many of you, $25,000 isn’t going to go too far in your own area in terms of buying real estate. However, in some parts of the country, it's plenty to purchase cash-flowing rental properties. Purchasing a rental property out of your own area comes with its own set of challenges from not knowing the local market to not knowing whom to trust when it comes to building a local team.
One option is to use something called a “turnkey company.” They help you find a property, assess the financials, and manage the property. Sure, they may come with some additional fees, but that’s the price you pay for their local expertise as well as convenience and time. There are many different flavors of turnkey companies like REI Nation and Roofstock. If you’re a DIY-type person, you can put the team together yourself if you’d like. Just make sure to assemble a team that consists of a local agent who knows how to think like an investor, and a good, reputable property management company.
Another very popular way to purchase your own rental properties is by buying short-term rentals (vacation rentals/AirBnB properties). The cash-on-cash return of these investments tends to be higher than renting out long-term properties. There are some really nice tax strategies for doctors that you might be able to take advantage of.
10. Real Estate Crowdfunding
Investing in real estate is one of my favorite ways to build long-term wealth. However, as I mentioned, in some cases it requires a decent amount of capital, and definitely more than $25,000 in some areas.
However, with the emergence of Real Estate Crowdfunding, there are now ways to participate in real estate debt and equity deals through online platforms. Expect to find returns anywhere from 7-17% depending on the type of deal you invest in. While mostly for accredited investors, there are some options as well for non-accredited investors with minimums lower than $25,000.
I’ve personally invested several hundred thousand in deals found on these sites. Some of these sites include Alpha Investing, EquityMultiple & CrowdStreet. What I have learned over time is that you should not invest in a deal simply because it's on one of these sites. Please learn to do your own due diligence and make sure you know what you're investing in.
Here is a list of my favorite real estate crowdfunding platforms.
For an in-depth explanation on syndications, you can check out my Guide To Real Estate Syndications, but briefly, this is very similar to crowdfunding in that you’re able to pool your funds with other investors and invest with a sponsor who operates the deal.
For most syndications, I've found that minimums are $25,000 or higher. Standard investment hold times are for 3-7 years during which dividends are paid along the way and your initial investment plus a shared portion of profits are returned at the time of sale.
Some of these syndications can be found on some crowdfunding sites and others can be found through networking and by attending local real estate investor meetings.
12. Real Estate Funds
While syndications are often thought of as single properties or deals, real estate funds invest in multiple properties, all under the same umbrella of the fund. Real estate funds provide investors, like you, with broad exposure to real estate for one investment. It's this diversification that is the biggest draw for me to these real estate funds. The downside is that the fees are often a bit higher but that's the tradeoff for diversification.
They pay out distributions monthly or quarterly depending on the investment and these are typically paid out in a tax-free manner throughout the life of the investment. When it sells, you're expected to pay capital gains taxes.
13. Your Own Education
Investing in your own education is always a good idea. With the internet, there are so many free resources out there to try to help you out, like this blog. However, I’m not afraid to invest in my education by purchasing books, courses, and even getting officially certified (like a real estate license) to further some of my businesses.
I would also throw in the idea that conferences are also a great way to add to your own knowledge & network.
Check out My Favorite Investing, Business, and Finance Books.
14. Your Children’s Education – a 529 Plan
The 529 is a post-tax savings plan for your children’s education. While once limited to college & higher education, with the new tax law, a portion of it can be used towards private school education as well.
Deposit limits are now $15,000 per individual per year or $30,000 for married couples in 2021. It’s also possible to front-load five years of contributions early, so you could contribute $75,000 or $150,000 as a married couple at one time.
15. Start a Business
You could use that $25,000 to start your own business. Every business needs some beginning seed money.
If you were ever part of our Leverage & Growth Summit, you know that there are so many physician entrepreneurs who have used creativity and ambition to create some amazing businesses.
There are plenty of other home-based businesses as well that you could start based on one of your many passions – courses, coaching, products, you name it. If you wanted, you could even buy a franchise for $25,000.
Check out our list of Physician Side Hustles.
16. Start a Blog
This is a business of sorts but I felt it deserved its own category. Thankfully a blog typically doesn’t require that much working capital. I believe the most important things you need to run a successful blog are time and dedication. It's something that you could start on the side and grow into a profitable side business. Think of a topic that interests you, buy a website domain (How to Start a Blog), and you could have it up and running within minutes.
Just how profitable you ask? That depends, but if you're genuinely interested, I do share my blog stats and income in my quarterly newsletters.
17. Angel Invest
Maybe you don’t have the time or desire to start your own business. However, maybe you do have the capital to invest in them. Well, then you can be an angel investor by investing in and owning a piece of a startup or small business.
I’ve mentioned it in some detail here but with crowdfunding, there are opportunities to be an angel investor with smaller amounts through sites like Crowdfunder, AngelList, and SeedInvest.
Obviously if one of the businesses turns out to be the next Uber, it can be quite lucrative, however, the chance of success is small so invest wisely. Personally, I've invested in some ventures to participate in some unique opportunities.
I've invested in e-commerce businesses, fashion, real estate tech companies, 3-D printed glasses, and more. Why? It's because I love investing in companies that I can add value to and participate in the growth of something I believe in.
18. Cryptocurrency & Bitcoin
Bitcoin has been all the talk recently on financial sites and Altcoins (other cryptocurrencies like Ethereum, Cardano, DogeCoin) have huge markets as well. We've seen greater adoption of these currencies in mainstream commerce as well as in larger investment funds.
Whether or not it's sustainable is something you should figure out on your own. There are very smart business minds on both sides of this fence. The truth is, no one knows where this will go, so please do not invest money you cannot completely afford to lose.
I jumped in with a small amount back in 2018 just to test it out and plan to report back to the blog. Of course with the benefit of hindsight, I regret not jumping in 4-5 years ago when I first thought about it. Want more info on Bitcoin and what I would've been sitting on if I had actually bought at that time, check out What's the Deal With Bitcoin?
Currently, I'm still sitting on an investment that makes up around 3% of my portfolio.
19. Invest for Charity – Donor-Advised Fund
Last but definitely not least, a donor-advised fund is an investment account used to contribute to charitable organizations of your choosing. When you contribute funds or other assets like stocks or mutual funds to the account, you’re eligible to take an immediate tax deduction. That account is able to grow tax-free until you designate some or all of the funds towards any qualifying charity.
Personally, I haven’t opened one up yet, but I’ve been mulling over it a while. I’m probably overthinking it and will likely just open one. If you want to read a debate on the subject check out WCI versus PoF: A Pro/Con on Donor Advised Funds.
Now, these last few are what I call truly non-traditional, alternative investments. You'd be surprised what people are investing in and finding success in. It's a way to diversify your portfolio even further, however it makes sense to learn how to do the proper due diligence on these investments before jumping in.
Would I invest a huge amount of my portfolio in these investments? Probably not, but it might make sense with a small portion of your portfolio.
21. Mineral Rights
Mineral rights simply refer to the ownership rights to the minerals under a certain piece of land. You, therefore, have the right to do what you want with it – extract it yourself and receive payment for others to extract it. What kind of mineral are we talking about? The ones most people think about are fossil fuels like oil and gas, but they can also refer to metals like gold and iron as well.
As an investor, you can invest in a fund that purchases and owns mineral rights or it's even possible to own a small plot of land yourself. If you're able to purchase a performing piece of land (already making money), it can be a steady source of passive income.
21. Fine Art Collection
Many people believe investing in art is only a commodity for the rich, but it has been a popular way to invest for decades, especially in times of economic uncertainty. This is a great option if you're looking to diversify your portfolio or are a lover of art.
A few ways to get involved include buying well-known pieces, accessing private art funds, or investing in new artists.
You can also get involved in funds and crowdfunded investments in fine art using platforms such as Masterworks. I am not affiliated in any way with this company, I just like to see what other things are out there.
22. Invest in Wine
Who doesn't love a fine wine? Wine is an extremely lucrative investment option that many people have never considered. And it's stable during market downturns which makes it an appropriate addition to any portfolio in the current economic environment.
Apparently, it's a collectable like fine art mentioned above and there are ways to get involved. You can work through dealers and brokers including trade shows and conventions.
More practically, you can work through crowdfunded investment platforms like Vinovest. They consider themselves to be the world’s leading wine investment platform where you can get in for minimums of $1,000.
Any big ones you'd like to add? Any new opportunities that you'll be investing in this year?