How to Invest $5,000

If you want to invest, $5,000 is plenty to get started with. There are a plethora of options available to you with this sum of money, such as funding your retirement account, opening a brokerage account or working with a financial advisor. However, your decision should hinge on what your financial situation looks like, what your goals are and how old you are.Below, we break down some of the options to consider if you’re wondering how to invest $5,000.

Do you have investing questions that a professional could help with? Talk to a financial advisor today.

1. Open a Brokerage Account and Start Investing

If you want to jump right into investing, consider putting that $5,000—or at least a portion of it— into a brokerage account. There are a number of brokerages that don’t even require a minimum amount to start investing, like Charles Schwab, E*TRADE and Merrill Edge.

In a typical brokerage account, you can invest in a wide range of securities. This makes brokerage accounts much more customizable than retirement accounts, which often limit your investment options. Here’s a breakdown of a few types of investments you can look into with a brokerage account.

Stocks

Stocks are generally regarded as the riskiest type of investment. That’s because when you invest in a company, you’re essentially betting on only it to perform well. However, this risk has the potential to bring strong rewards, as stocks feature some of the best returns on the investment market.

Investing in a company’s stock is incredibly easy, and most major brokerages now offer commission-free trades. Beware of investing too heavily in stocks, as a few bad decisions could be costly. Instead, try to diversify your assets across not only market sectors, but also different securities, like the ones below.

ETFs

Exchange-traded funds (ETFs) offer a lot of benefits for investors – they’re low risk, are an easy way to diversify a portfolio, and are more liquid, as they can be traded in the same way as a regular stock.

Investing in an ETF also can result in lower fees and, potentially, lower capital gains taxes. First, their fees are lower because they aren’t actively managed. And second, your capital gains tax, if any, will be lower when investing in an ETF.

Mutual Funds

A mutual fund company pools money from individual investors and invests it, charging each investor a fee for the convenience of having someone else manage their money. The biggest mutual fund companies are household names. Think Fidelity, Vanguard and Charles Schwab, among others.

There are a vast number of mutual funds. Some hold stocks, others hold bonds, yet others hold a combination of stocks and bonds. Many of these funds focus on securities of companies that are a certain size or a specific region of the world. When picking one, be sure to make sure it matches your risk tolerance and that you’re comfortable with its cost.

Index Funds

An index fund is a mutual fund or an ETF that has been programmed to track a market index, like the S&P 500, the Russell 2000 or the Wilshire 5000. These passively managed funds are very low cost, offer a diversity of securities and are tax efficient. Index funds are also attractive because most actively managed funds do not, longer term, beat the market index they have chosen to target. The goal of an index fund is to match, not beat, the designated index, which means these funds offer investors a relatively high degree of safety.

2. Work With a Financial Advisor or Robo-Advisor

A financial advisor meeting with clients.

If you’re unsure of what to do with your money, putting it in the hands of a financial advisor may be the way to go. These professionals can provide advice for your personal situation, whether it be investing, retirement planning, estate planning or anything else. Of course, you’ll pay a fee for these services, but the human touch of a financial advisor could prove to be invaluable.

On the other hand, a robo-advisor digitally manages your portfolio based on a preset algorithm. Robo-advisors usually also offer rebalances and tax-loss harvesting, among other functions. While some robos provide human advisors too, they best as a hands-off investment manager.

Robo-advisors offer simple investment management with very low fees and minimums. However, a human advisor may be preferable if you need to plan for your long-term future.

3. Add to Your 401(k) Balance

If you’ve been neglecting your retirement, now’s the time to get back on track with a 401(k). You can’t drop the $5,000 directly into the account – the funds are taken directly from your paycheck – but you can use the extra padding in your bank account to increase your contribution.

This is an especially smart move if you have an employer match. Be sure you contribute the maximum necessary to take advantage of your employer’s match. After all, it’s basically free money.

4. Open an IRA or Roth IRA

If you plan to max out your 401(k) this year—the 2025 limit is $23,500—then you may consider opening an IRA if you don’t already have one with your brand-new nest egg.

Whether you opt for a Roth IRA or a traditional IRA in part depends on your income. Remember, to be eligible for a Roth IRA, your AGI must be less than $150,000 in 2025 ($236,000 for joint filers). Traditional IRAs do not have salary limits.

The tax benefits of these accounts differ as well. Your contributions to a traditional IRA are tax-deductible in the year you make them, and you’ll pay taxes on withdrawals based on your income at that time. Roth IRA contributions aren’t tax-deductible, but you won’t pay taxes when you make withdrawals.

Either way you go, an IRA is an excellent way to add a boost to your retirement income, in addition to any other income streams you might have, like 401(k) savings, a pension or Social Security benefits. Plus, the 2025 contribution limit for IRAs is $7,000, so you’d make good headway towards maxing it out with $5,000 to invest.

5. Start a 529 Plan for Your Child

This one only applies if you have children or dependents and you’re planning to fund their college education. If so, this is likely something that’s already on your to-do list. Opening a 529 savings plan with a four-figure amount like $5,000 is an excellent place to start.

A 529 savings plan offers tax-deferred growth of your funds, plus tax-free withdrawals when those funds are used for education-related expenses. It’s a solid choice to invest $5,000, especially when you consider that the average cost of attendance for one year at a public university is now roughly $27,000, and nearly $59,000 a year for private universities.

6. Contribute to an HSA

HSAs can give seniors tax-free growth and withdrawals in retirement, boosting overall savings.

While healthcare savings accounts (HSAs) are only available to those enrolled in high deductible health plans (HDHP), they offer some great short- and long-term advantages. They allow for pre-tax contributions, allow for tax-free growth and unused funds roll over from year to year.

While you can definitely use your HSA to pay for eligible healthcare expenses (and you should) they also offer another, lesser-known benefit: After age 65, you can withdraw funds and use them for non-healthcare expenses, penalty-free. You’ll still have to pay taxes, just as with a traditional IRA. But this means that you can essentially use your HSA as both a healthcare savings account and a bonus retirement account. Win-win.

7. Short-Term Savings Accounts

If you’re looking to invest $5,000 with minimal risk and you have a short time horizon, savings account options can provide a safe and reliable way to grow your money. These accounts are designed to preserve your principal while offering modest returns, making them ideal for goals like building an emergency fund or saving for a near-term purchase.

High-yield savings accounts (HYSAs) offer easy access to your funds while earning better interest rates than traditional savings accounts. Many online banks offer HYSAs with interest rates significantly higher than the national average. These accounts are FDIC-insured, meaning your money is protected up to $250,000 per account. Plus, they offer flexibility, as you can deposit and withdraw funds without penalty.

For slightly higher returns, though with a fixed commitment, consider certificates of deposit (CDs) or short-term bonds. CDs lock in your money for a specified period—typically three, six or 12 months—in exchange for a guaranteed interest rate. Meanwhile, money market accounts (MMAs) combine the liquidity of a savings account with a slightly higher yield, although they may require a higher minimum balance. Short-term government or corporate bonds are another option, offering predictable returns over one to three years.

By diversifying across these types of short-term savings accounts, you can balance accessibility with competitive interest rates while minimizing risk.

How to Develop a Strategy to Prioritize Your Investments

Creating an investment strategy begins with identifying your financial goals, understanding your timeline and evaluating your risk tolerance. Start by listing your short-term, medium-term and long-term goals, such as building an emergency fund, buying a home, saving for retirement, or funding education. Then, assign a timeframe to each goal and determine how much risk you are comfortable taking. Goals that are further away may support more aggressive investments like stocks, while those that are coming up sooner may require safer, more stable options like high-yield savings accounts or short-term bonds.

Once your goals and risk tolerance are clear, prioritize them based on urgency and overall importance. Foundational needs like emergency savings and retirement typically take priority, as they support long-term financial security. Match each goal to the right type of account or investment. For example, a Roth IRA may be suitable for retirement, while you might opt for a 529 plan for education savings and a money market account for near-term needs. If you are working with a fixed amount of capital, consider dividing it proportionally based on your priorities, such as allocating 60% to long-term investments and 40% to shorter term needs.

Revisit your plan regularly to keep it aligned with your financial situation. Major changes such as a job change, marriage or market volatility can affect your priorities or available resources. Set aside time each year to review your progress, make adjustments and rebalance your portfolio if needed. A clear, goal-based strategy provides structure and helps you stay focused on long-term objectives rather than reacting to short-term market shifts.

Bottom Line

Just because you may not have a fortune to put to work doesn’t mean you can’t make a solid start investing with a relatively modest amount. There are many choices, such as 401(k)s, IRAs, ETFs, stocks, 529 plans and HSAs. Which one is best for you depends on your age, risk tolerance, financial goals and more.

Tips for Becoming a Good Investor

If you’re new to the investment game, working with a financial advisor might be worth it. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Once you put your $5,000 to work, figure out how much you need to reach your goal. Try using SmartAsset’s investment calculator to answer that question.