How to Invest 20K

Smart investors carefully plan how to put their savings to work.
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Couples with two incomes and shared living expenses can often rack up savings faster than their single counterparts. However, after working hard to build up your nest egg, you need to invest it wisely. Although there are no guarantees that you'll make a profit from every investment, if you know some basic investment facts, you can make smart and solid decisions that can bring you the enjoyment and financial security you seek.

Open an Account with a Stock Brokerage Firm

Although in the short term, the stock market can prove volatile, in the long run, investing in the stock market often pays off -- sometimes, better than investing in real estate. For instance, from 1978 to 2004 the S&P 500 index provided an average annual return of 13.4 percent; real estate's performance in the same period was a modest 8.6 percent. Choose a brokerage firm and open an investment account to start trading. You can do this online by visiting the brokerage's website or in-person by meeting with an agent at the firm's closest office. Purchase securities that best help you meet your short- and long-term investment goals.

Put a Down Payment on a House

Whether you're buying your first home or considering an investment property, putting your $20,000 into a down payment is often a good idea. A large down payment can get you a lower interest rate -- as well as reduce the loan balance on which you pay interest. Although it's often tempting to stretch your budget and buy the house of your dreams, you can maximize the return on your investment by purchasing a home within your price range -- or slightly lower, particularly if it's an investment property. Also keep in mind that when you purchase real estate, you typically have to pay closing costs, which include a laundry list of fees you'll owe practically everyone involved in the sale -- and generally amount to thousands of dollars.

Invest in Collectibles

With the rise in popularity of pawn and auction reality shows, you might find that investing in collectibles is a rewarding business. A budget of $20,000 will allow you to invest in wide array of high-demand collectibles, such as rare coins, original paintings and antique furniture. Unless you're an expert in the field, always request an appraisal of the collectible before buying. However, even the best research can't guarantee that you'll find a buyer, so only buy collectables you find pleasure in owning. Remember to purchase insurance to protect your investments from damage, theft and loss.

Start Your Own Business

Invest your 20k as seed capital for a low-cost startup business. Start your own business from scratch, using your cash for inventory and supplies, or buy into an established franchise. Either way, it's possible to use your $20,000 to develop an enterprise that can allow you to leave your boss behind and enjoy financial independence. If you decide to go the franchise route, do your homework as many franchises cost a lot more than $20,000, but with a bit of research, you should find some in your price range -- or the additional financing you'll need.

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