What Should You Do With $5000

If you suddenly received a windfall of $5000 or so or happened to reach that amount in your savings, what would you do with that money? Actually, a better question is what should you do with that money? Most of us could blow $5000 on things we want quite easily. However, that’s not really what we should do.

The first thing to do is to take care of any outstanding debt. If you don’t have much debt or if there’s still some money left over, your next step should be to invest the money you’ve saved. That might be difficult when there are so many things you want right now, but investing will pay off in the future and for the long-term, making it a much smarter option than just going on a spending spree.  

There are all kinds of different investment options at your disposal. You could put the money into a mutual fund, an index fund, a certificate of deposit, or an exchange-traded fund. Which one you should choose is dependent upon a lot of different factors.

One of the first things to consider when choosing an investment avenue is how soon you’d like to see a return on your investment. Those who’d like to see a nice pay-off in five years, for example, are obviously going to want a different option than those who can wait ten or more years.

If you don’t want to wait at all or to only wait as long as you can with no restrictions, an online savings account may be your best option. With this option, you can take out your money at any time. Obviously, it will accumulate more and earn more interest the longer you leave it in, but it’s there if you need it with no withdrawal penalty. Also, you’ll typically get a better interest rate than you would with a savings account at a traditional bank.

For those who are aiming for an investment return in five or fewer years, a CD is a good option. You can choose a maturity date for your CD, so you can set it up for five years or whatever other time you want. Do be mindful when you set up your maturity date, however, because if you withdraw any money before then, you’ll pay a hefty penalty.

If the idea of a penalty scares you, then you might consider a money market account. These accounts are similar to CDs though they do earn less interest. CDs, and most other accounts that allow you to withdraw money at any time, typically do earn less interest. However, they make up for the lowered interest rate by having no penalty for withdrawals no matter when you withdraw the money. Of course, the longer you wait, the better, but that’s true for most types of investment accounts.

For those who want to guarantee higher interest rates and who don’t mind waiting several years (generally more than five) to see a sizable return on their investment, actively managed mutual funds are a good choice. With these funds, you’ll have access to a wide range of stocks. Plus, if you hire a fund manager to assist you, you won’t have to make those tough decisions about which stocks are the smartest to invest in at which times. 

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