Inverted colors and distorted image on imac wake up

Try restarting in Safe Mode and also resetting the NVRAM, then re-test and see if the issue still is going on. The links below will have instructions for each of the resets.

https://support.apple.com/en-us/HT201262

https://support.apple.com/en-us/HT204063

Thank you for the report. What I see are two items of concern. First, even though your computer has 16 GB of RAM installed for your needs this may not be enough. The report is indicating the computer is running out of RAM, this may be cause of your problem as the computer may need to RAM swap when it's waking up if you have a lot of processes running. If that is correct, then you can either upgrade the RAM to either 24 or 32 GB or you can learn to manage the RAM you already have.

The other thing I notice, is there does not appear to be any backup for your computer. If this is correct, this is shortsighted and WILL eventually result in either a total or partial loss of data. At the very least, you should use Time Machine to backup the computer. If you are not familiar with TM please look over https://support.apple.com/en-us/HT201250

Yes, it's not Mac OS otherwise it would have affected millions and Apple would have already put out a bug fix. I suspect the RAM upgrade you did simply was not enough. However, please begin monitoring how your RAM is being managed. You can do this by using Activity Monitor (Applications - Utilities - Activity Monitor). There are instructions for how to use AM RAM monitoring in https://support.apple.com/en-us/HT201464 , click the Memory tab.

On the original image that you posted did you blur out some portions of the image to conceal personal info, or is the 'smearing' simply part of the issue you are experiencing?

You've already tried most of the troubleshooting steps I would try, however here are a couple more questions and steps.

How often does this issue occur? (hourly, daily, weekly, monthly) When the issue occurs, how long does it last?

You mentioned that the issue started after installing a memory upgrade. Have you tried removing the upgraded memory to see if the issue goes away? What type of memory did you install? Did you confirm that it is fully seated? I have difficulty seeing how the memory could have caused this type of issue, however because the installation of the memory seems to be linked to the occurrence of the issue I suggest temporarily removing it.

If you take a screenshot of the entire display while the issue is occurring does the saved screenshot file also show the issue? You'll obviously need to view the screenshot file on another working system, or wait until the issue disappears in order to answer the question. If the issue shows up on the display, but not in the screenshot file then this would indicate to me a possible problem with your LCD display. If the issue shows up in the screenshot file when viewed on a working system then I would assume a possible software issue or issue with the graphics circuitry on the logic board.

Does the issue occur if you boot to the macOS recovery mode. You can enter macOS recovery mode by turning on your Mac and immediately pressing and holding the Command (⌘)-R keys. For more info visit:

About macOS Recovery - Apple Support

Once booted into macOS recovery mode wait long enough to see if the issue returns. This will help isolate whether the issue is somehow related to the copy of macOS installed on your system. macOS recovery boots from a separate protected partition or over the internet depending on what specific key combination is used.

As others have already stated, it is important that you keep a back up of your data. I lost important family pictures a while back and now I always have at least two backups. It's a tough lesson to learn.

IOS does not run on Macs, Mac's use Mac OS. They look similar however are totally different. Please do the following:

Please post an EtreCheck report of your system and we can look for any obvious issues. Please click the link, watch the slideshow to learn how to use the tool and download and run the free version of the app and then post the complete report it produces as your reply to this message. 

When you have run the report and are ready to reply to this message please attach the report. You will see a screen shot below that indicates where to click in your reply message.

Yup, you are right. Well the only thing I can think of is when you last updated part of the install (or download) was corrupted. What I'd recommend is reinstalling Mac OS from the Recovery Partition. This will fill in any missing or damaged portions of Mac OS and will NOT erase or damage any of your data. That being said, you should ALWAYS have a valid complete backup of your system just in case.

To do the install, restart the computer in the Recovery Partition (Command + R on startup) and install Mac OS to the original destination.