If you have $10,000 saved up and want to know where to invest it, the answer will probably surprise you. It’s not as simple as you think!

Okay, let’s start with the first question.

Do you already have an emergency fund?

If your answer is “what’s an emergency fund?” then let’s start there. Saving at least a small emergency fund to start (say three months worth of basic expenses) is the first brick in your financial foundation. Getting this in place will make sure that you’ve got something to fall back on in case of emergency. 

Got it? 

Onto the next question.

Do you have any credit card debt?

If your answer is “I try not to look”, then let’s look. Credit card debt is seriously expensive, with interest owed compounding at 20% per year, and this isn’t the good kind of compounding! Credit card debt can balloon and become a real problem quickly, so getting rid of it should always be a financial priority. 

Taking care of these two things first, an emergency fund and any credit card debt or other high interest debt, will give you a financial foundation to build on. 

Now that we have a stable foundation, let’s move on to the next level. 

Do you have any big expenses in the near future?

If there's something big you need to buy in the next 1-2 years, like a house downpayment or wedding, then it’s probably best to invest that money in something super safe. For this, check out either a high interest savings account, money market fund, or short term bond fund. You want to invest in something stable like this because anything riskier would open up the possibility that you could lose money in the stock market in the short term and not be able to buy that thing! 

A few potential things to invest in for the short-term are:

• High interest savings account: Wealthfront offers one that gives you 5% interest! This is just like a bank account, you can pull your money any time.

• Money market fund: Vanguard Federal Money Market Fund gives you a bit more interest by investing in cash and very short-term government bonds, one of the least risky forms of government bonds. 

• Short-term bond fund: iShares Short Treasury Bond ETF just invests in short term government bonds, which are usually very stable.

So, that’s the short-term taken care of, let’s move on to the medium-term.

Are there any big things you need to buy in the next 3-6 years?

If the answer is yes, then we can take a bit more risk, but it’s still good to be cautious. If you look at times when the stock market fell by a lot, like in 2000 and 2007, it usually takes about 6-7 years to recover fully. Interestingly, COVID was a real anomaly; the stock market only took 9 months to get back to its previous highs. Pretty wild.

For that reason, if you have something you want to buy in the next 3-6 years, you may want to take a more balanced approach to investing. You could invest in some stocks and some bonds. The easiest way to do this is to hold a balanced fund that does this for you. Two good options are:

iShares Core Growth Allocation ETF (AOR): over the long-term, this fund has delivered 7.6% in annual return and costs just 0.15% per year.

Vanguard Growth ETF (VBAL): this costs slightly more, at 0.24% per year, and has delivered about 7.3% over the long-term

Now that we’ve looked after your foundation, short-term needs, and medium-term goals, I can ask…

Are you just investing for the long-term?

If you’re investing for a timeline of six years or more, you really only need to decide how much risk you’re comfortable with. If the idea of losing money in the markets makes you nervous, then sticking with one of the balanced funds from above is probably best. But if you don’t care and want to shoot for the moon with your portfolio, then investing in some risky stuff is okay! More risk offers more potential return. This means investing mostly or entirely in stocks. There’s a few options here:

iShares MSCI World Index ETF: this invests in stocks from developed countries, like the U.S., England, and Japan. It costs 0.48% and has returned 12.2% per year on average over the long-term. 

Vanguard S&P 500 ETF: this invests just in large companies from the U.S.. It costs only 0.03% per year (!!!) and has returned 14.5% per year on average over the long-term. 

Invesco QQQ ETF: this is the most risky of the three funds listed here, as it invests in a focused list of 100 technology-focused U.S. companies. It costs 0.20% per year and has delivered long-term returns of (drumroll plz) 18.7%. Sheesh.

Blink twice if you’re still with me

Now, tell me if you blinked. 

So, what starts as a simple question has me peppering you with a bunch of questions in response! Apologies! But now you know what to do based on your specific situation. There’s of course more customization that you can do, but knowing what your financial needs and priorities are is the first place to start when trying to decide where to invest that $10,000. 

Let’s. Get. This. Bread. 

You (thinking you’ll get a simple answer): What should I invest in?

Me: