7 Steps To Take If You Have More Than $5,000 To Invest, According to Financial Experts

Commitment to Our Readers

GOBankingRates’ editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Trusted by
Millions of Readers

You can invest with nearly any amount of money, but having at least $5,000 puts you in a good position to start making some moves that can benefit you in the long run. But whether you’ve never invested before or you’ve dabbled, you’ll want to be strategic about it. After all, you’ve already reached a major milestone in having that much cash to spare. You’ll want to make it count.

GOBankingRates spoke with Dayten Rynsburger, co-founder and chief revenue officer of Niche Capital, and Robert R. Johnson, CFA, CAIA, professor of finance at Heider College of Business at Creighton University, about the key steps you should take if you have at least $5,000 to invest. Keeping in mind that everyone’s journey and goals are different, here’s what they suggested.

Also see ways to invest against high inflation, according to a financial advisor.

Set Some Goals

Start by setting some personal goals.

“Decide what you want from your investment,” Rynsburger said. “Without clear goals, it is difficult to make informed choices about any type of investment scheme — whether it is saving for retirement or long-term growth.”

Having goals can help you get — and stay — on track with what you want to do. It’s okay to start small. After all, you don’t have to achieve your goals tomorrow or even next year. The key is to have a clear idea of what you want to accomplish.

It’s easier to set goals if you have a timeline.

“The first thing to do is to determine your time horizon,” Johnson said. “It is very different investing for retirement (when your time horizon may be over 30 years out) and investing to save for a down payment on a house or for a child’s college education.”

Weigh Your Risk Tolerance

Not everyone can stomach the same amount of risk, so make sure you understand your own risk tolerance before investing in anything. Otherwise, you could end up stressing yourself out, losing sleep at night or even pulling out your investment before it can see any solid returns.

“Acknowledge how much risk you can tolerate,” Rynsburger said. Knowing your limits, he continued, can go a long way in helping you choose the best investments for you.

As a general rule of thumb, investments with higher returns also have higher risks attached to them. But the opposite is also true. You might, for example, get lower returns by investing in bonds, but you’ll also have much less risk. The stock market, meanwhile, tends to have higher returns — but also higher short-term risk.

Invest In Several Things

Another option — though what you do is ultimately up to what works best for you — is to diversify. In other words, spread out your $5,000 in different investment vehicles.

“Do not keep all your eggs in one basket; avoid investing everything into the same category of assets,” Rynsburger said. He also suggested allocating “your $5,000 among various assets such as stocks, bonds and ETFs so as to reduce risks while maximizing returns.”

If you’re not sure the best areas to invest, do some research or consult a professional. And as always, you can start small. Consider investing a nominal amount in different areas — say, $200 in an ETF — and see how things go.

This can also help you determine your own risk tolerance. If you feel anxious about the way you’ve invested your money, that could be a sign that it’s time to make a change. This isn’t always the case, however, so be as strategic about reallocating your funds as you were with your initial investment.

Consider Low-Cost Index Funds

Rynsburger also suggested investing in low-cost index funds as an option to bring more balance to your portfolio.

“These funds offer a wide exposure to the market in question at lower costs; hence, they suit new investors,” he said.

Consider Using a Robo-Advisor

A robo-advisor is essentially an automated financial advisor that can help you build, track and rebalance your investment portfolio based on the goals you set. They’re not for everyone, but they do have their advantages.

In particular, Rynsburger pointed out that they can be cheaper than other investment management services. If you’re just starting out and don’t have a ton of extra cash to play around with, this could be a good option to start with.

Review and Rebalance Your Portfolio

Once you’ve invested the $5,000 or so, you can let it sit for a while. But you’ll also want to go back and review your portfolio every now and then.

“Review your investments regularly and make necessary changes in portfolio rebalancing,” Rynsburger said. “This keeps the investment strategy in line with both market conditions and personal desires.”

Say, for example, your risk tolerance has changed. You may want to invest in assets that offer higher or lower risk — depending on your preferences and goals. If you’re looking for higher returns and don’t mind a bit of risk, you may want to diversify your portfolio to account for these new goals.

You may also want to make changes — or even those initial investments — based on your timeline.

“If your time horizon is hurt, your options are very limited as financial market volatility can lead to losses in the short run,” Johnson said. “If one needs the money in a shorter period of time, say 10 years or less, then one should likely choose a CD with a duration equal to the investment horizon.”

Keep Things Simple

Johnson suggested following the “KISS” strategy, no matter where you are in your investing journey.

“For the vast majority of investors, the KISS mantra — keep it simple, stupid — should guide their investment philosophy,” he said. “People should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down or sideways.”