If decisions about investing your money feel a bit overwhelming, you’re not alone. With $10,000 there are so many options: Invest in companies. Plunk cash into index funds. Or maybe real estate investing?

To narrow down the list of investing vehicles, it helps to first determine a few details like your financial goals and time horizon. Here’s what to ask yourself and how to start investing your $10,000.

3 questions to consider before investing

1. Do you have an adequate emergency fund?

Events like medical crises and layoffs may be unexpected, but you can plan—at least financially—for the possibility of the unplanned. Saving a few months’ expenses in an emergency fund is an essentially universal axiom among financial advisors, but according to the Federal Reserve, 43% of American adults would have difficulty paying an unexpected $400 expense. 

Sudden life events can throw investors off course financially for months or even years if they can’t cover the expenses. So experts suggest saving up an emergency fund that totals at least three to six months’ worth of household expenses. If you don’t have a “rainy day” account or it isn’t adequately funded, that $10,000 can go a long way for peace of mind.

2. What are your financial goals and priorities? 

Those looking to invest $10,000 have a long list of investment options available to them, and it’s crucial to narrow down the list based on individual needs and goals. A major factor is the time horizon, or how long an investor plans to keep their money invested before withdrawing it.

A short-term time horizon is traditionally considered applicable to goals an investor would like to achieve in five years or less, like taking a family vacation or buying a car; medium-term is five to 10 years, such as a down payment on a home; and a long-term horizon usually applies to goals at least 10 years away, like saving for retirement or building children’s college funds. That’s why there’s no single answer to how to invest money or where to invest.

3. How much risk am I comfortable with?

Typically, your financial goals and time horizons correlate directly with the level of risk in your portfolio. While all investments do include some degree of risk, there’s a wide spectrum. To use retirement plans as an example, a 62-year-old who’s set to leave the workforce in a few years would traditionally have a higher percentage of their portfolio in safer investments like bonds that often grow slowly and steadily. A 24-year-old’s retirement portfolio would likely have more money in the stock market, which is comparatively riskier but may lead to a positive return on investment over the long term.

Risk tolerance

is a balance. Less risky investments have the advantages of being less volatile, with the potential for slow and steady growth over time. But they’re less likely to offer a big payout. By contrast, higher risk investments like individual stocks or cryptocurrencies can result in big payouts—but they also fluctuate and may result in losing money.

7 ways to invest $10,000

1. Bonds

Bonds

—especially government bonds—are usually considered to be a safe-haven investment because they lock in a source of income. A bond is an agreement between a lender and a borrower: The bond issued by an entity like a company or a municipal government to raise funds. Investors purchase the bonds and are guaranteed that the money they’ve loaned will be repaid in full within a specific period, with a bit of interest on top. This provides a predictable income stream, and certain types of bonds also come with tax advantages. But returns can often be lower than those of stocks. Also, inflation can hurt investors’ returns: Bond prices and yields move opposite to each other, so an increase in rates sends prices lower.

2. Individual stocks

Some investors may want to pick the individual stocks they invest their $10,000 in. There are many approaches to picking stocks: choosing between value and growth stocks; choosing between companies that pay dividends versus those who reinvest all earnings to drive growth; and choosing a general or socially responsible investing approach, which excludes companies that are generally viewed as bad for society, such as alcohol, tobacco, firearms, and fossil fuels. Investors can trade stocks themselves through brokerage accounts.

3. Robo advisors

If you don’t want to choose your own stock investments, you have several options for outsourcing the selections to professionals. One of these options is a robo-advisor, which is an online tool that uses expert-built algorithms to automatically allocate assets and manage portfolios. Investors answer a few questions about their financial goals, age, time horizon, and other details, and the robo-advisor uses that information to pick investments—typically rebalancing the portfolio frequently. 

4. Index funds

Index funds are either mutual funds or exchange-traded funds (ETFs), and their goal is usually to try to match the performance of a market index, like the S&P 500. This is a passive approach to investing: It endeavors to mirror a benchmark. And investors have plenty of those benchmarks to choose from, including ones that track small-cap stocks such as the Russell 2000, international stocks, or specific sectors like financials, energy, or technology.    

5.  Actively managed funds

In contrast to robo-advisors and index funds, actively managed funds are built by professionals who constantly add and swap out securities in an effort to beat the wider market. Fund managers make their picks by leveraging expertise such as technical research—a method of analyzing stocks using details like historical data and behavioral analysis to predict the future of the market—and fundamental analysis, which uses publicly available financial information to determine the intrinsic value of a stock. 

Typically, actively managed funds try to beat the market by buying shares they feel are undervalued or aim to carefully time moves. Actively managed funds generally charge higher fees than index funds and are considered higher risk, but with that risk may come the potential for bigger gains. 

6. Peer-to-peer lending

You can choose to put your $10,000 into an online peer-to-peer (P2P) lending platform, in which investors can lend money directly to consumers or businesses. Similar to a bank, borrowers pay back the lender the principal amount plus interest on top.

This option can be more risky or less risky: The lending platforms score each potential loan with a credit-risk rating, and the higher the risk, the more interest the lender will receive. Investors can use this information to determine where they want to lend, and they can opt to review and choose their own investments, or allow the platform to do so automatically after specifying the asset allocation they want across each level of credit rating.

P2P is considered a high-yield investment because returns may potentially be greater than that of other assets. But with that possibility for a higher payday comes higher risk: Borrowers may default, and there’s no recourse for the investor because P2P lending is typically an unsecured loan, meaning they aren’t backed by collateral. Would-be lenders may be able to reduce this possibility by choosing loans that offer lower interest rates but are scored with a low risk of default, spreading their money across multiple loans, and comparing P2P platforms’ average default rates. 

7. Cryptocurrencies

Cryptos like Bitcoin and Ethereum have been buzzy the last few years, and you may choose to use your $10,000 to buy cryptocurrency. It’s a famously volatile market: No. 1 Bitcoin and No. 2 Ethererum hit record highs in November 2021, but by mid-2022 both had fallen 70%. It’s a high-risk investment, and depending on the timing of your moves it comes with the possibility of high payouts or high losses.

The bottom line

With $10,000, investors have several options as they consider where to put their money. First, it’s critical to ensure they have an adequate emergency fund. From there, determining details like financial goals, the desired time horizon for achieving them, and level of risk tolerance can help narrow down the list of investment vehicles, which include bonds, individual stocks, index funds, actively managed funds, peer-to-peer lending, and cryptocurrency.