Best Way To Invest 20K and How To Get It Right

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Despite the effects of inflation, 20K in cash is still a substantial sum of money. It could give you a head start if you want to invest in something, but the trick is knowing how to make the most out of it.

There are tons of gurus online claiming immediate success as long as you follow their steps, which can be tempting. However, answering the question, “What’s the best way to invest 20K?” is never easy.

Make one or two mistakes, and that capital will magically disappear in an instant, with no chance of getting it back. Let’s discuss the different ways of investing money as well as other related topics.

What All Newbie Investors Should Know

Before we get into the nitty-gritty of what to do with 20K, there are a couple of recommendations worth considering. If you are a new investor, here’s what you have to keep in mind before parting with that money:

1. Identify your goals.

The first step is to determine what you want to achieve and how much time you are willing to commit. Although it is mostly true that higher returns have more risks, some investments are riskier than others.

You may get enticed by the promise and probability of success of a certain investment, but it shouldn’t be the only basis. Assessing not only the challenges but also whether you understand what you are investing in would go a long way.

It is also critical to ensure your chosen endeavor aligns with your budget and long-term goals. By factoring these aspects together and the related risks, you can be sure you are on the right track.

2. Be ready to play the long game.

Short-term investments are more about preserving your capital, which is good if you are not sure of what you want to do. However, if you’re interested in growing your investment, it’s more advisable to engage in a long-term investment.

Building a portfolio that can deliver consistent profit for years will take time. Even if you know what to do with $20 000, don’t expect revenue will come in bunches overnight.

Most successful investments took years before they became what they are. As such, be patient and play the long game because a well-executed business endeavor needs time before it brings results.

3. Diversify your portfolio.

No matter the field or amount you’re investing, risks are inevitable. While they can deter you from achieving success, there are a couple of ways to minimize these concerns. One of the most proven methods is by diversifying your investments.

A diversified portfolio allows you to be more confident investing in high-return endeavors while offsetting potential business-related hazards.

Once you have acquired experience and sizable revenue, you are better prepared to venture into high-reward sectors like real estate or the stock market. Here are a couple of tips for diversifying your investments:

Index Funds

It is a type of mutual fund that seeks to monitor the performance of an extensive assets group like currencies, bonds, and stocks. They are arguably the most prominent means of investing for most people since they charge low fees with long-term growth potential.

When you purchase index fund shares, you are essentially pooling your funds with other investors. This setup is significantly easier than starting from scratch, which is convenient for first-time investors.

You may also utilize index funds to promote certain sectors or industries if you prefer a more strategic approach. However, be prepared as these funds might be more costly than those that track well-established indexes.

Listed below are some of the most popular classifications of index funds.

  • Equity Index Fund

An equity index fund tracks a certain stock index. It is one of the popular and largest index funds as it is often associated with tracking the S&P 500.

  • Balanced Index Fund

If you want to invest across multiple asset categories, you should check out balanced index funds. You can have a mixed investment portfolio of bonds and stocks with varying percentages.

  • Bond Index Fund

This index fund focuses on tracking specific bonds. Usually, bond index funds are associated with government bonds and corporate debt investments.

  • Broad Market Index Fund

Also referred to as total market index funds, they try to replicate a whole investable market performance. These funds mostly follow equities that are included on one of the several popular indexes. Examples are the Nasdaq Composite, the Dow Jones Industrial Average, and S&P 500.

  • International Index Fund

As the name suggests, they are investments in foreign index funds. It is important to note that international index funds come with their special set of risks, from political to economic. Nonetheless, they remain an appealing choice for investors looking for ways to diversify their portfolios.

  • Sector Index Fund

Sector funds invest in a specific market area called a sector. They provide some diversity if you choose to have different holdings in your portfolio. However, since their volatility can be detrimental, we recommend spending a modest amount of your investment allocation in sector funds.

Target-Date Funds

Target-date funds are another way to manage investment risk. As long as you are far away from the target date, the fund invests in riskier assets such as stocks. It will then change the portfolio’s allocation to safer assets, like cash or bonds, once you are closer to the target date.

Those who are planning a retirement account often consider this investment strategy because its approach is more passive than others. Target-date funds are often managed like mutual funds.

The specific investments made by a mutual fund are decided by its goals. These funds may provide an easy solution for investors to keep a diverse investment portfolio that rebalances over time.

Although target-date funds strive to minimize risk over time, they are not risk-free, even after the target date has passed. Like most types of investments, losing money is a possibility, especially if the bonds and stocks drop in value.

Cash Investment

Cash is often ignored by most novice investors when they are building their portfolio, but it does have certain advantages. Although cash will almost certainly diminish in value over time because of inflation, it could be a life-saver if a market downturn is imminent.

Having a cash investment may help your portfolio be less affected than market averages during a downturn. Still, this advantage primarily depends on how much cash you have and other assets you have.

Many investors focus on the investment options that are now accessible to them and neglect what may be available later. However, if you have 20K in cash, you will be well-positioned to take advantage of any future investing deals when the market falls.

4. Rebalance your asset allocation.

The markets are always subject to changes, which also means your investments will experience the same. As an investor, it’s critical to be vigilant and alert to ensure you are ready to act on time based on how the market behaves.

There will be times when your asset allocation is not optimized. When this happens, you need to rebalance.

For instance, the stock market moves in one direction erratically, significantly impacting your investment percentages. You have to recalibrate the percentage to maximize the chance of achieving the objectives you envisioned. If you leave it unchanged, the changes in the market could negatively impact the growth of your investment.

best way to invest 20K in 2022

What’s the Best Way To Invest 20K?

Now that you have a better idea of the basics of investment, it’s time to enumerate the top methods of making your $20K more valuable.

1. Open a high-yield savings account.

A high-yield savings account (HYSA) could be the best way to invest money if you don’t want to work too much. While the interest rate of ordinary savings accounts won’t give you anything significant, that’s not the case with HYSAs.

Overview and Features

Interest rates on high-yield savings accounts typically vary from one to 2.2 percent. Given the disparity in rates between high-yield savings accounts and the national average, the earnings rise is considerable.

If you have $20,000 in savings and the national average APY is 0.06 percent, you would only earn $12 after a year. If you invested the same money in an HYSA producing two percent, you would make $400.


A high-yield savings account, like a typical savings account, may have a monthly withdrawal cap. Regulation D restricted the times account holders can withdraw per month in the past, but it’s currently not implemented.

Still, banks and credit unions could limit the number of withdrawals you can make in your HYSA. They could also enforce overdraft fees.

How To Start

Before going to your local bank to open an HYSA, do proper research online to learn about your choices. Online banks often provide significantly higher interest rates than traditional banks.

The former has fewer expenses because they do not need to operate physical branches. Because online banks have lower operational costs, they have more means to share with their account holders.

While doing all of your banking online is not considered the standard yet, it might take some time to get used to it. Still, as long as your bank has FDIC insurance, you wouldn’t have to worry about the security of your money.

2. Get a certificate of deposit.

A CD is a unique type of savings account that offers you to save money while earning fixed interest for a specific period. You typically gain a higher interest rate if you let your money sit for longer.

CDs are regarded as one of the safest ways to invest or save money.

Overview and Features

The primary advantage of CDs over ordinary savings accounts is the fixed interest rates. So, if you open an account when the rates are higher, you are guaranteed that it will stay that way. There’s no need to worry if the rates drop later.

Once the term of your CD end, you may have the option to convert it to a regular savings account or renew it with a new rate. However, many advised that it would be better to check the best CD rates before committing. It can potentially be the best way to invest money if you have great timing.


While it appears that certificates of deposit could be one of the best ways of investing 20K, it also comes with some limitations. Firstly, you are most likely not allowed to deposit more money once your account is up and running. Another challenge is you won’t be able to withdraw any amount until the term ends.

How To Start

CDs are mostly offered by banks (physical or online), credit unions, and other similar financial institutions. A certificate of deposit acquired via a brokerage is called a brokered CD. You can open a CD by making a one-time deposit and then leaving it to grow until the duration end.

Usually, you can choose a period from three to 60 months. However, numerous specialty CDs do not adhere to the setup of standard CDs.

Specialty CDs provide account holders with greater leeway to take advantage of superior rates, protection when the rates are lower, and penalty-free access to their funds. Consider which type of CD suits your objectives and start from there.

3. Avail of a robo-advisor service.

Also called automated investing services, robo-advisors plan and handle your investment portfolio using advanced software and computer algorithms. They make investing and financial management more accessible at a lower cost than traditional models.

In short, getting a robo-advisor can help you figure out what to do with 20K.

Overview and Features

These services allow more people to save, invest, and build their capital toward financial success without the need to hire a professional to guide them.

When you avail of a robo-advisor service, you will encounter inquiries about your investment style, risk tolerance, and other preferences. Then, based on your circumstances, it utilizes algorithms to create portfolio allocations that best fit your goals.

Robo-advisors often invest in exchange-traded funds because they are typically low-cost investments and are more diversified.


The main disadvantage of robo-advisers is that they lack the human factor. An algorithm may create suggestions for you based only on the data you submit. That information is generally confined to basic, quantifiable variables like your budget, retirement age, and how much of a risk-taker you are.

These factors are critical, and they should be taken into account while putting together an investment portfolio. However, algorithms of today are limited to recognizing other variables other than definitive data. That would be alright if we were living in cyberspace, but we’re not there yet.

Your motivations for investing are just as important as your age and risk tolerance in making the appropriate financial decisions. An algorithm cannot assess that, nor can it advise you on what to do in tough, emotional, or sensitive scenarios that may happen anytime.

How To Start

Factors such as fees, portfolio management, and financial planning tools are essential to determine the best robo-advisor for you.

Whichever you pick, you need to make sure that the program can provide you with a comprehensive view of your entire financial structure with sufficient tracking tools. These features help you in accomplishing your objectives, especially when the market is not looking good.

When you’ve identified the robo-advisor that fits your preferences, create an account and complete the online paperwork. There are some services that require proof of identification, original or copy, submitted to the company. However, it’s more likely that you’ll be instructed to print the completed online form, sign it, and mail it together with your identification records.

After your membership is activated, you have to answer the risk profile questionnaire. Then, the robo-advisor will distribute the funds you have based on your unique investment profile.

4. Hire a financial advisor.

If you don’t want to leave the fate of your 20K on a computer program, you could always go old-school. Hiring a financial advisor is probably the most convenient means for beginners to learn how to invest 20k, but it may not be the most economical.

Overview and Features

Financial advisors are specialists who provide financial counseling and guidance to investors or businesses. They have the knowledge and expertise to help you achieve your financial objectives faster.

By sharing well-established strategies and investment knowledge, a decent financial advisor can be your ticker to increased wealth, proper debt management, growing your portfolio, and many more.

These advisers typically charge a higher fee than most robo-advisor services or brokerage firms. However, they provide a unique feature—a personalized experience that no AI or online articles can emulate.

Speaking of fees, financial advisors usually ask for fees based on the amount of money you invested with them. This setup is called assets under management (AUM). The average rate is roughly one percent of AUM annually, although a number of firms charge up to two percent.


The best advantage of a financial advisor is the human touch, but in some cases, it could be its worst aspect. Inept or dishonest advisors might cost you your entire $20k or more. For example, they may tempt you to purchase and sell assets more frequently than required, which will earn them more commissions.

When you delegate your investments to a third-party entity entirely, you might not learn too much about how the market works. So, when something bad happens to your investment, a financial advisor can manipulate you into thinking that it’s not their fault.

To be fair, even with a reliable advisor, there is no such thing as guaranteed success in the stock market. Yet, you are still the one who must face significant losses, not your financial advisors.

Furthermore, if you are investing a modest amount, the advisor’s fee may eat up a bigger part of your earnings because smaller accounts often have higher prices.

How To Start

There are several ways to find competent financial advisors. The easiest way is via recommendations from family, friends, or colleagues. You may also check out financial advisors on reputable online databases, such as and There are also websites that offer free advisor database services.

One of the most difficult aspects of finding a financial advisor is determining what type fits your circumstances. There are various terminologies in the financial industry that could easily confuse newbies. That’s why it is critical that you do some homework before choosing.

When considering advisors, you have to factor in their credentials, track record, and pricing arrangements. You may visit if you want to see if your prospects have previous complaints or disciplinary actions reported against them.

5. Start a business.

In regards to investing your hard-earned money, most people would suggest starting a business. Out of all the ways on this list, it could be the hardest to figure out but might very well be the most rewarding.

Overview and Features

Going the entrepreneur route means you will have to be creative, patient, and a whole lot of other virtues. You also have to do some legwork, as establishing a legitimate business means you have to ensure the legal paperwork is all in order.

If you already have an outline of how you’ll establish your company, it’s a huge advantage. Many investors are struggling to come up with a business model that fits their capital and goals.

Overall, this method is arguably the oldest way of investing, but it will always be one of the best because the sky’s the limit. Your initial investment of $20K could turn into millions or more if you manage to check all the boxes.

More often than not, startups will take a long time before you start earning substantial revenue, provided you don’t encounter too many obstacles.


While the potential earnings of your business can be life-changing, you also have to be aware that you are not riding the gravy train. Expecting that it is the best way to invest 20K short term is being overly optimistic.

To give you an idea, 90 percent of startups fail. It doesn’t matter if you invest $20K or $200K, as any business is bound to fail for numerous reasons. For example, offering an inferior or mediocre product or service. You may also lose because of better competition. There could also be visibility challenges, especially if your business is online.

Starting a business requires a lot of time and effort, which, if you have a day job, can be significantly challenging or impossible to manage. In other words, this venture has the highest potential of bleeding you money.

How To Start

Filing the paperwork and spending the $20K is the easiest part of building a company. Local government websites have definitive guidelines on how to accomplish your legal obligations. Your money will probably go to equipment, permits, lease, manpower, and inventory.

The question is, “What business do you envision will bring you the most success?” Carefully assess all the relevant variables such as location, budget, and target market. From there, think about what field you are interested in or good at.

Never start a company that won’t interest you. You need to have an optimistic and positive attitude because some days could be rough. For example, if your area collects a lot of foot traffic and you are into food or cooking, you may want to try opening a food truck.

6. Real Estate

Contrary to popular belief, you don’t need to have hundreds of thousands of dollars to invest in real estate. In fact, it might just be the answer you’re looking for when thinking about what to do with $20 000.

Overview and Features

Because of its tax advantages, positive cash flow, increasing value, and passive income potential, real estate is recognized as one of the most popular investment vehicles. Still, when you only have $20K to work with, most investors will think twice about investing in real estate.

Due to the high initial costs and considerable risk, even those with a sizable capital won’t consider real estate. However, if you look at the potential returns, there’s little argument about the industry being a good choice on how to invest 20K.


While real estate values could rise after a while, the market itself is volatile. You can’t expect that it will always have an upward trajectory. Like the stock market, real estate can get affected by inflation, supply and demand, politics, interest rates, calamities, government regulations, and other impactful events.

If you own a real estate asset, you also have to be prepared for the expense of property maintenance. The cost could cause the investor to lose money before even earning. That’s why if you think that the best way to invest 20K short-term is via real estate, you could be mistaken.

Moreover, property taxes in big cities are higher than in other areas, which can make a dent in the profits. Before investing in real estate, you should be aware of the expenses associated with it, such as management fees and maintenance.

How To Start

There are a couple of ways to invest in real estate that can suit your financial capacity. You can put a minimum deposit or your 20K as a down payment for a rental property and then apply for a loan.

Once you manage to get a tenant, it will be easier to pay the bank. After some time, you will own the property and enjoy bigger earnings.

Real estate investment trusts (REIT) are also recognized by some as the best way to invest 20K. They are companies that hold commercial real estate, and private investors can participate to earn dividends. As a result, rather than owning a single investment property, you will own a percentage of several properties within the portfolio of the REIT.

Investing FAQs

1. What are other ways to spend your 20K wisely?

If investing is not something you are not considering this time, you can still use that amount to make your financial situation healthier.

  • Credit Card Debt

The almost exorbitant interest rate charged by credit card companies could easily ruin your financial ventures. If you have trouble with credit card debt, it’s advisable to use your 20K to minimize or remove your monthly CC fees.

  • Retirement Accounts

Many suggest that investing in retirement accounts would bring tax benefits now or later. It may also grow your money over time.

  • Emergency Fund

Even if you have a regular, stable source of income, you can’t always expect that you will have a constant stream of revenue. An emergency fund establishes a safety net you can use for unanticipated payments.

2. Can you buy stocks with 20K?

The amount is more than the minimum investment requirement for prominent online brokers. You can invest in individual stocks, EFTS, and more.

In real estate investing, purchasing a home or other investment property may present you with a slew of tax benefits. Several expenses spent by real estate investors are tax-deductible and are claimable on your taxes. You won’t have to pay applicable government-mandated fees like property taxes.

4. Is investing your 20K in cryptocurrency worth it?

Those who have a high-risk tolerance would think that the best way to invest 20K short-term is investing in cryptocurrency. However, it’s not for everyone.

There’s no way to know how the industry of cryptocurrency will fare in the next five years. The volatility of its value could be more than some can handle. With countless cryptocurrencies running around, there’s no telling that high-valued ones such as Bitcoin and Ethereum will stay the same.

5. How to identify your investor profile?

Your investor profile is primarily defined by your risk tolerance. To make it easier, assess if you are more willing to take risks to gain higher rewards. Other factors such as investment goals and time horizons also help determine your investor profile.

The Best Way To Invest 20K

Depending on your situation and financial flexibility, the answer to what’s the best way to invest 20K will likely be different from another. Regardless of which method you prefer, always set a strong foundation to ensure more potential earnings and fewer errors.

Uday Tank is a serial entrepreneur and content marketing leader. He has a wide variety of interests and enjoys writing, including marketing, productivity, business, health, diversity, and management.