It can be fun to play what-if games. For example, what if you suddenly had $50,000: What would you do with it? Many people might start shopping for a fancy new car or look into finishing their basement, among lots of other possibilities.
One terrific thing to do with $50,000, especially if you haven’t saved much for your future, would be to invest it for your retirement. Let’s assume that’s the case. Here’s how I might go about investing that money.
Starting from scratch
If I’m starting from scratch, I’ll assume that I don’t know very much about investing other than the fact that lots of people seem to make a lot of money investing in stocks. Since I don’t want to lose this significant chunk of money, I’ll be trying to not make crucial errors with it. I’ll try to read up on investing, in order to learn what to do and what not to do.
There’s a good chance that I’ll do at least some of my learning at Fool.com, which has long recommended investing via low-fee, broad-market index funds. These are great for beginning investors, and even seasoned ones can do well by putting much or all of their long-term money in them.
Setting the stage
That “long term” part is right: I should only invest money in the stock market that I won’t need for at least five years (if not 10), since the market can be volatile. For the short term, money might be plunked into certificates of deposit (CDs), money market accounts, bonds, or other less-volatile investments.
Here’s another consideration: If I have any debt with high interest rates, such as with credit cards, I’d do well to pay that off pronto — such debt can make it hard to ever get ahead financially. If you’re earning an annual average of, say, 8% to 15% in stocks but are paying 20% to 25% on your debt, you can lose ground instead of gaining it. So some of that $50,000 (or all, if need be) should pay off high-interest debt.
Also, if I don’t yet have an emergency fund, with enough to fully support me for…
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