Looking to learn the best way to invest $25,000 safely? Congratulations. Saving any amount of money isn’t easy, particularly if you live in Inland Empire where the cost of living is rising quickly. Saving $25,000 is a huge accomplishment and you want to make sure it is invested in a way that matches your financial goals.
If you need some help on how to invest $25,000 and avoid risk, you have come to the right place. If you are just browsing and educating yourself about investing $25,000 in the future, it’s smart to learn how to invest and not spend this amount even before it hits your account. You probably already know that $25,000 will not guarantee financial security unless the money is invested in ways that allow it to compound.
Factors That Dictate How to Invest $25,000
There are myriad ways to invest $25,000 and what is right for you at your age, personal circumstances, and future plans may not be right for another person with $25,000 to invest. The main factors that dictate your investment choice are: your goals, time horizon and risk tolerance. Let’s take a closer look at each of these:
Goals: Are you saving for retirement? If so, what will your retirement lifestyle look like and how much money do you need to maintain it? Are you staying in your home or downsizing? Are you saving for a college education for your children or grandkids? How much will that cost and how many kids are there? Your goals may be completely different. There are just some of the goals to consider when deciding how to invest $25,000 or more for the future.
Time Horizon: Time horizon investing is all about planning. Once you have thought about your goals, investment selection is based on the amount of time you have until the goal must be funded. If you have 30 years to reach a goal, such as retirement, a market move that causes the value of your investments to plunge is not as big a danger, given that you have decades to recover. Experiencing the same volatility a year before you retire, though, can seriously derail your plans. Typically, short-term time horizon is 5 years or less, intermediate-term is 5-10 years, and long-term is defined as more than 10 years in the future. If you are looking for a safe investment for your $25,000 or more, thinking about your time horizon will help narrow down your options.
Risk Tolerance: Risk tolerance is the degree of risk that an investor is willing to endure given the volatility in the value of an investment. An important component in investing, risk tolerance often determines the type and amount of investments that an individual chooses. An aggressive investor commonly has a higher risk tolerance and is willing to risk more money for the possibility of better, yet unknown, returns. A conservative investor commonly has a lower risk tolerance and seeks investments with guaranteed returns.
Pay Off Your Debt First
If you have debt, you're not alone. Nationally, household non-housing debt is at the highest level since 2008. The easiest way to invest your money may be by paying off debt. It may sound odd but paying off your debt is the first and biggest investment you can make with $25,000 in your account. If you have high-interest-rate credit card debt, focus on paying it off first. Compare the rate of return on your investments to your credit card's annual percentage rate (APR). Historically, the average rate of return for stock market investments is around 10%, while, on average, APR on credit cards is above 20%. So, if you are investing when you have credit card debt, you are likely paying a higher interest rate on your debt than you are earning via your investments. So if you are wondering how to invest $25,000 safely, your first step may be to look at your debt and consider paying it off.
Should You Invest $25K In An Annuity?
When you are ready to invest $25,000, your financial advisor may recommend buying an annuity. First, let’s start with the basic definition of an annuity. Annuities are investment contracts between you and an insurance company. They come in different forms and usually include a guaranteed return at a stated rate. Depending on what kind of annuity you have purchased, the insurance company will provide you with certain contractual guarantees.
Income annuities can provide the confidence that you will have guaranteed retirement income for life or a set period of time. There are five main kinds of annuities: a single premium deferred annuity, an immediate annuity, a variable annuity, an index annuity, and a tax-sheltered annuity. The person who purchases the contract or the policy is known as the owner. This person can make any changes (to the beneficiary, to the amount of the distribution) they want any time they want-they own the policy. Two people or more can own a policy as well, as co-owners.
With the exception of an immediate annuity, all annuities defer income taxes owed on all of interest or gains that your original deposit has earned until the money is withdrawn by either you or your beneficiaries. In essence, they work for you as a tax shelter--a big draw of annuities. The true advantage of this is that your money is allowed to stay in the account earning interest or growing for you.
The amount you invest into an annuity depends on the type of annuity you want and the goals you want to achieve. You can open a fixed annuity for as little as $2,500 to $5,000 with continuing premium payments or you can start an immediate annuity for as low as $25,000.
You can continue investing into a deferred annuity up to one or two million dollars — or even more if you get a special exception from the company that sells you the annuity. If you are wondering whether you should invest $25,000 in an annuity, the answer will depend on a few factors. Most people are very good candidates for investing $25,000 in an annuity to receive guaranteed income upon retirement.
Example of How a Minimum Annuity Would Pay Out
Generally, the more money you put into an annuity, the more you will receive in your payout. Payouts can vary depending on the type of annuity you buy. You can use an annuity calculator to determine what your payout will be. For immediate annuities, your age, gender and amount of your investment all play a part in your monthly payout.
For example, let’s say you are a man who invested the minimum amount of $25,000 in an immediate annuity at age 67 — the retirement age for full Social Security benefits. You’d begin collecting monthly payments of $125.95 immediately every month for the rest of your life. The difference in monthly payout amounts between men and women is affected by life expectancy. Women tend to live longer, so the lifetime payout is spread out over more years.
Some things to consider when deciding how much to invest and which type depends on the type of annuity, interest rates or stock indexes, your age when you buy the annuity, and your expected retire age.
Questions to Ask Before Buying a $25,000 Annuity
If you are considering investing $25,000 in an annuity, discuss the following questions with your insurance agent or financial planner:
What are your financial goals with an annuity?
What kind of annuity is best suited for your needs?
How much are fees, commissions and other costs?
How much do you have to invest?
How well does the timing and length of the investment work for you?
How much risk are you willing to take?
What is the guaranteed minimum interest rate?
How much of your annuity can you withdraw?
How will an annuity work with your other income?
The answers to these questions, individually and when combined with other information about your income, age, where you live, personal circumstances, time horizon and financial goals, will help you decide whether an annuity is right for you at this time. Don’t feel obligated to pressured to invest your $25,000 in an annuity. Your financial advisor will guide you through the options that make sense for your goals. If that includes buying an annuity, then you will be well informed and prepared to make the investment. If you discover than an annuity is not the optimal investment for you today, you will be armed with additional information and general personan finance knowledge that many people lack today. Either way, the more you know about annuities and other investment, the more you will feel in control of your future.
Where Do You Buy a $25,000 Annuity in Southern California?
When it comes to buying an annuity, there are a lot of options available. For example, you can buy an annuity from an insurance company, a bank, or an investment firm. So, where is the best place to buy an annuity?
The main advantage of buying an annuity from an insurance agency is receiving professional advice from an agent. They will help you choose the right type of annuity and riders based on your needs. Whether you are looking to invest $25,000 or a different amount, your insurance agent is familiar with your financial situation and personal goals and can guide you in the best direction.
At AIM, Inc, we can help you find the best annuity for your needs and ensure you get the most out of your investment. If you are wondering where to buy an annuity in Inland Empire or Southern California, you can feel confident in your decision to buy an annuity, invest your $25,000 safely and enjoy the peace of mind that comes with knowing your retirement plan is taken care of. Contact us today to discuss your financial goals and get started with investing for your future! There is no obligation of any kind; we provide a free consultation to all customers. Please visit our website and read our client testimonials and enjoy the video interviews with our clients.