Updated Sep, 2019

What should I do if I have $5,000 (or $20,000) to invest?

what should i do

I am assuming that to be asking this question, you have no investments or investment plan yet.

Firstly, have a read of the investment order for new investors.

If you have an emergency fund and no debts (besides HECS/HELP), then:

  • If you will be using it for something specific in the next 5-7 years (car, holiday, house deposit, etc.), put it in something safe such as a fixed-term deposit or HISA. The stock market is not a bank account. You need to be able to allow time for your investment to recover from the ups and downs.
  • If you can leave it in there for at least 5-7 years, you should educate yourself on investing and create a financial plan (more on this below).
  • If you can leave it in there for at least 5-7 years, and if it is a one-off and you can’t be bothered learning about investing, you could potentially just purchase a parcel of VDHG and leave it in there indefinitely, but be aware that the stock market is volatile and a 30-50% drawdown from time-to-time should be expected as normal stock market behaviour. Hopefully at some point you will be interested in learning about passive investing for your future and create a plan for saving and investing – don’t leave it too long.

What should I do if I have $100,000 to invest?


If you’re planning on using the funds for a specific purchase in the next few years, stocks are not the place for it because the stock market may be down at the time you need it and withdrawing at that time will crystallise the loss.

Let’s say you were saving to buy a house in the next few years, and you invested that money into shares. If the stock market fell heavily after three years and took another six years to recover (this is not unusual for the stock market), then by the time you need it, you’d be selling at a loss. You would need to spend more time (potentially years) re-earning that money or waiting for the market to recover, and in the meantime, property prices could be rising faster, making the situation even worse.

Anything that you will need in the next few years should be in a risk-free investment, such as a fixed-term deposit or HISA.


Now that’s out of the way, let’s continue.

With this sum of money, you’re at a point where you can’t just chuck it in VDHG and learn about investing later. You need to understand more deeply what you’re investing in because in a severe market decline, seeing 10k or 20k drop by half and making a mistake by panic-selling low is going to suck, but it’s not going to devastate you financially. But with 100k or more, it will, so you really have no sensible option but to learn about passive investing so that you understand what you’re doing, why you’re doing it, and be able to lay out a plan based on mitigating risks and execute that plan.

The fundamental part of your education will consist of learning essentially the first 10 or so articles of this site.

  1. Inflation and why you can’t just put everything in term deposits
  2. Fear of investing
  3. The risk-reward spectrum
  4. Asset allocation and your risk tolerance
  5. Index funds
  6. Mitigating risks
  7. Bond funds
  8. Equity funds
  9. Franking credits – how much more are you really getting
  10. Currency risk – personalising your AUD to non-AUD allocation

If you would like other sources to learn from, I cannot recommend these highly enough. Take your time, and don’t rush through them.

JL Collins Stock Series
Investing Demystified
Road Map for Investing Success
Passive investing guide – Monevator
Bogleheads wiki
Bogleheads forum

By the time you’ve gone through those, you should understand the fundamentals of how to come up with an asset allocation that suits your own risk tolerance.

If anything isn’t clear, please feel free to drop me a message through the contact page so that I can improve it and make it clearer for you and for others.

The last thing that may be helpful after you have gone through all of that is to read about investing a lump sum.