Look at your investment goals and future plans when considering how to invest $50,000. You may choose to place some money in index funds.
Q: Hi, if you had $50,000 in a bank savings account I was wondering how would you invest it.
A: That’s not a fair question. Your question implies that I would have the same investment goals as you might have and that we both share the same vision of the future.
We have children that are coming up on college expenses and we would need that $50,000 for their education. Given the near term goal of educating our children and needing that money soon, we might keep the money in an interest bearing account to have easy access to it and pay college bills.
These days, you can find some banks paying around 8/10ths of one percent interest. Not much, but given the short-term need for the money, that could be one place to put it.
If your children are young and you have enough money from your jobs to pay your monthly living expenses plus a bit more for savings, and you have $50,000, you might consider putting some of that money towards your retirement or your kids’ future education. If that money is placed for investment purposes, you can consider the length of time you have from now until you retire or your kids go off to school, then decide to invest that money.
Your choice of investments might be to place it in index funds, with a company like Vanguard, or you can buy stocks with the money in those accounts, with an account in a company like Schwab. In either case, you’d want to make sure you understand that you might lose money through your investment if the market goes down.
We tend to like index funds as these funds tend to reflect market circumstances. Total market index funds or world index funds and even bond index funds can be options you can look at when considering your investment choices.
There was a time that index funds were frowned upon by the financial industry, but recently their growth has been quite large. Quite a bit of money has flowed from managed funds into companies that handle index funds.
One of the benefits of some companies that promote investment in index funds is that you can invest a relatively small amount of money in those funds and the costs of putting money in those funds and keeping the money in can be quite low.
Keep in mind that some mutual funds can charge a hefty amount of money to put the money into those funds and then charge quite a bit of money to keep the money in a specific funds. If the fund performs great and well above the market, the fees you may pay might be outweighed by the benefits. However, given the recent flow of money into low cost index funds might be telling us that people now see the benefits of tracking the market at a low cost.
In addition to all that information, you also need to keep in mind what other savings you have. If the only savings you have is the $50,000, you’ll want to have at least several months of savings in an account you can access in case of an emergency, health issues or any other thing that could occur and require access to money quickly.
We hope this gives you an idea as to what our thoughts would be, without necessarily answering your question directly.