Investing is a difficult activity, with the average person investing only around $3k in 2018. This article will walk you through 15 different ways to invest your hard-earned money and how much each investment yields.
In today’s world, the average person is looking for ways to invest their money. If you have $100k and want to make $1 million, there are a lot of different options out there. Read more in detail here: how to invest 100k to make $1 million.
So you want to put $100k into something? The good news is that you have a lot of possibilities.
For novice investors, gradually growing a modest account might seem difficult. Building a portfolio for a bigger account with $100,000 or more, on the other hand, is not always easy.
Even if there are more options for the types of vehicles that may be used to invest in various assets, there are many aspects to examine to ensure that the primary is reasonably secure and grows at an acceptable rate each year.
In this article, we discuss various possibilities that investors might examine if they have a large cash reserve of at least $100,000 that has to be invested in promising prospects.
Before You Invest a Million Dollars
If you have $100,000 to invest, you may feel a little overwhelmed when deciding which investments to make.
Before you begin weighing all of your possibilities, you should first define your expectations and the kind of risks you are willing to take. These variables will differ from person to person, and they will most likely be impacted by how the money was gained and what future goals they have for it.
Before you start investing $100,000, the first step is to figure out what your financial objectives are.
Most individuals have fundamental objectives, such as purchasing their first house, getting married, putting money down for their children’s college education, going on a vacation, creating an emergency fund, accumulating wealth, or accumulating a retirement fund.
Your Tolerance to Risk and projected return may differ dramatically depending on your goals.
Your investing horizon will define how active you should be in pursuing the previously stated objectives. Young people, for example, have more time on their side when it comes to generating money since their assets will compound over time.
Regardless of your objectives, the deadline for reaching them will be a key factor in deciding which asset classes to include in a $100,000 portfolio, since the returns generated by these instruments must be adequate to raise the account’s value to the predetermined target.
Tolerance to Risk
When it comes to taking chances, not everyone is constructed the same. A person’s attitude toward risk is influenced by a variety of circumstances, including their prior experiences and age.
Depending on your Tolerance to Risk, the kind of investments you might feel comfortable with will vary.
Investing: Active vs. Passive
Active investing entails taking a hands-on approach to the process of constructing a diverse portfolio. This entails studying and evaluating all potential possibilities, as well as making timely modifications to the portfolio’s target weights and other parameters.
Meanwhile, passive investing is delegating this effort to someone else or putting your account on autopilot by using an automated investment program.
A person’s Economic Situation will influence their decisions when allocating $100,000 into different investments. For example, if your liquid net worth exceeds this amount by more than three or four times, you might be comfortable with assuming a lot more risk than someone who will depend on the proceeds earned from this portfolio to cover his/her living expenses.
Investing $100,000 in 15 Different Ways
Now that we’ve covered the procedures to follow before investing $100,000, here’s our list of the best options for anyone with this kind of money.
1. Purchase solid growth stocks.
Growth stocks are equity securities (usually common shares) issued by enterprises with potentially innovative business concepts and bright future prospects. These companies are often reinventing their sectors, and their creative value offer has piqued the curiosity of both consumers and investors.
The top growth stocks have a combination of the following characteristics:
- Business model that is very disruptive
- Annual sales increase in the double or triple digits
- A clear road to financial success
- Debt that is manageable or none at all
- The entire addressable market is large (TAM)
Netflix is an excellent example of a successful growth stock (NASDAQ: NFLX). The video streaming behemoth increased its revenue from $3.1 billion in 2011 to $24.9 billion by the end of 2020, or a 26 percent compound annual growth rate. During the same time period, the number of subscribers increased by 23.2 percent, from 21.5 million to 192.9 million.
Netflix’s stock has increased 37.6% per year on a compounded basis over the last ten years.
As part of your $100,000 investment plan, you may develop a diverse portfolio of growth stocks of the most promising organizations in emerging areas.
2. Invest in Stocks That Pay Dividends
Dividend stocks are those that have a good yield, a steady financial outlook, and a good chance of growing dividends in the future.
Mature firms with an established business plan, a strong brand, and consistent financial performance are the greatest dividend stocks.
Kimberly Clark is an example of a reliable dividend stock (NYSE: KMB). The current dividend yield on this stock is 3.6 percent. The firm has grown its dividend by an average of 5% each year over the last ten years and has made unbroken dividends for 50 years.
3. Invest in exchange-traded funds (ETFs).
ETFs are vehicles that allow you to invest in a diversified basket of securities from a given asset class or that meet the criteria for a specific investing strategy.
ETFs trade like conventional stocks, allowing you to quickly establish a portfolio via your favorite brokerage company.
These funds may be classified into many groups based on their strategy, tactical approach, and other comparable factors. Here’s an illustration.
- Geographically: Concentrated on a single nation or area.
- Dividend, growth, or value as a strategy
- By industry: Healthcare, oil & gas, technology
- By asset class: stocks, bonds, and commodities
- By tactical approach: controlled actively or passively
ETFs have modest yearly management costs, and their diversified nature lets investors to get exposure to certain attractive parts of the market without having to depend on their stock-picking abilities.
Public, Robinhood, and TradeStation are among the brokers that presently provide zero-commission ETF trading.
4. Put money into mutual funds
Mutual funds are professionally managed investment vehicles that give exposure to a diverse basket of instruments. They, like exchange-traded funds (ETFs), specialize on a certain asset class, area, or industry, but they are organized differently.
Mutual funds allow investors to purchase shares directly from the fund’s parent business, with a $1,000 or $2,000 minimum commitment.
Expenses vary based on the fund’s strategy and approach, and non-trading fees like as load fees and early redemption fees are common.
Mutual funds may be purchased via typical brokerage firms such as Firstrade, Charles Schwab, and others.
5. Use a Robo Advisor to invest.
Robo-advisors are automated and passively-managed investing solutions that rely on an algorithm to build a portfolio on behalf of investors based on their unique financial goals, Tolerance to Risk, and other aspects.
Investors are usually required to complete a questionnaire in order for the robo-advisor to identify the best portfolio composition for them. After that, the algorithm will swiftly construct the suggested portfolio using low-cost exchange-traded funds (ETFs).
Robo-advisors will also help with normal portfolio management activities like rebalancing. Some additional functions, such as tax loss harvesting, are also supported in some circumstances.
Robo-advisers are often less expensive than human advisors, and businesses like as Betterment have been providing these services for years, with costs as low as 0.25 percent of the account balance each year.
6. Purchase REITs that are publicly traded.
REITs (real estate investment trusts) are entities that enable investors to have exposure to the real estate market without actually owning a property.
REITs usually focus on a certain market sector, such as residential, commercial, or telecommunications assets. Investors are paid via capital gains and periodic dividend payments if the market price of the trust’s assets and their earnings-generation capability rise.
The majority of REITs trade on a public market like stocks, and a portfolio may be readily purchased via a brokerage company. Some ETFs also provide exposure to a diverse REIT portfolio.
Crown Castle (NYSE: CCI), Prologis (NYSE: PLD), Equinix (NASDAQ: EQIX), and Simon Property Group are some of the major US-listed REITs (NYSE: SPG).
7. Make a real estate crowdfunding investment
Real estate crowdfunding is the practice of pooling funds from a group of investors to support a real estate transaction. Sponsors are in responsible of marketing and organizing the deal, while investors might take part as lenders or shares.
Investors make money by receiving periodic dividends from the firm or by receiving interest payments on loans they have issued. They may also gain if the home is sold for a better price in the future.
Platforms for real estate crowdfunding, such as Fundrise and CrowdStreet, are among the most popular websites where investors may engage in this kind of opportunity.
8. Make a cryptocurrency investment
When a mysterious cryptologist called Satoshi Nakamoto submitted a whitepaper for a peer-to-peer, decentralized payment mechanism known as Bitcoin in 2009, cryptocurrency was born (BTC). The rest is legend.
Cryptocurrencies as a whole have grown to be a $2 trillion ecosystem, and developers are attempting to disrupt whole sectors by developing decentralized solutions that can power real-world enterprises.
Cryptocurrencies and its underlying technology, the blockchain, are compared to the internet in the early 2000s by some. As a result, many people believe this whole asset class to be a fantastic investment opportunity.
Keep in mind that since this is a new business, there are a lot of dangers, so you should properly investigate any project you invest in before deciding how much of your portfolio is exposed to it. A moderately aggressive portfolio should allocate no more than 10% of its assets to cryptos as a rule of thumb.
Cryptocurrencies may be purchased on well-known exchanges like as Kraken, Gemini, or Coinbase. To prevent being hacked, we highly advise you to put your cryptocurrency in cold storage.
9. Purchase gold.
For ages, gold has been seen as a safe haven and a store of value because it has been universally acknowledged as a medium of exchange by governments and people to settle business transactions.
The durability of gold, as well as its practical use in jewelry and some industrial operations, contribute to its appeal as a prospective investment. On a compounded basis, gold has generated a positive 1.2 percent return over the last ten years.
The investor’s perception of the condition and prospects of the global economy determines whether gold is an enticing investment.
Investors may purchase and store actual gold via services like Vaulted or buy an exchange-traded fund (ETF) that monitors the price of the precious metal like the SPDR Gold Shares ETF (NYSEARCA: GLD) or the iShares Gold Trust ETF (NYSEARCA: IAU).
10. Start a Company
Those with an entrepreneurial spirit may want to consider bootstrapping and launching a firm to bring one of their ideas to reality. In the IT and energy sectors, innovation has created several opportunities. You should, however, establish a company in an area that you are familiar with and that fits your talents, experience, and background.
You may not wish to invest the entire $100,000 in a single venture, but $20,000 may be sufficient to get you started, depending on your goals. You may also seek for seed money to supplement your first budget.
11. Put money into a small business
Angel investors are those who put money into businesses that are still in the early phases of development in the hopes of discovering the next Apple, Amazon, or Google in some garage office.
This could be an especially appealing option for retirees who have already built a successful business or risen to C-level positions during their careers. This is because they have the type of industry-specific knowledge that might enable them to spot potentially successful businesses before they reach that stage.
Platforms like Mainvest and Wefunder have established a marketplace where investors and entrepreneurs can meet and do business.
12. Put money aside for retirement.
Because they provide tax benefits, retirement funds are an excellent option for investing $100,000. These accounts postpone paying taxes on profits until the account holder withdraws funds.
As a consequence, the taxes that would be due if this were a typical investment account are re-invested numerous times, resulting in returns for the investor – also known as compounded interest.
401(k)s and individual retirement accounts (IRAs) are two of the most common retirement vehicles that investors utilize to benefit from this. Individuals may establish an IRA at most brokerage companies.
Your broker may even be able to provide you with an automatic passive investing solution that allows you to put your retirement money on autopilot.
If you are under the age of 50, you may now contribute up to $20,500 to a 401(k) and $6,000 to an IRA. If you have $100,000 to invest, you may choose to fund your retirement accounts to the hilt.
13. Certificates of Deposit and Money Market Accounts (CDs)
Using products supplied by prominent financial institutions, such as Money Market Accounts (MMAs) and Certificates of Deposit (CDs), is perhaps one of the safest and most conventional methods to invest money (CDs).
These are low-risk, low-reward investments that lock an investor’s money for a certain length of time in return for a tiny interest rate paid regularly or when the contract expires.
Money market accounts invest in highly liquid short-term fixed-income instruments like Treasury bonds, while CDs are issued and guaranteed by the financial institution.
Even while this may seem to be a risk-free option if you are risk averse, bear in mind that the interest rate offered on these instruments is relatively low, and in a high-inflation environment, negative real yields may erode your capital’s buying value.
14. Purchase bonds
Bonds are fixed-income contracts that entitle the holder to periodic interest payments as well as the return of the principle when the bond’s maturity date arrives.
Bonds have long been seen as a necessary component of any investing strategy. However, their appeal has waned recently as investors seek out riskier and potentially more rewarding assets due to historically low interest rates in the United States.
Bonds are often desirable investments in a climate of high interest rates, as long as both the interest and principal are deemed to be reasonably safe. Financial services businesses assess bonds based on the likelihood that the issuer would fail in the future.
Bonds may be categorized in a variety of ways. Here’s a rundown of how they’re usually classified by financial professionals:
- Investment-grade bonds, trash bonds
- Short-term, intermediate-term, and long-term maturity dates
- Corporate, municipal, and government issuers
- Domestic, international, and emerging-market
Investment-grade bonds are safer than trash bonds, but their yields are lower. Bond funds are a wonderful option for the lay investor to invest in this asset class instead of having to pick from a large number of options.
These funds, whether organized as ETFs or mutual funds, may be purchased via a regular brokerage company. Furthermore, certain brokers may allow investors to purchase individual bonds.
15. Peer-to-Peer Lending (P2P)
Peer-to-peer (P2P) lending is a relatively new investment possibility that eliminates the intermediary from traditional lending. Individuals lend money to one another using a platform that assists them in determining the terms and properly closing the transaction.
In contrast to the traditional arrangement with banks, where depositors are given a tiny interest rate for letting their money stay on an account securely, investors get to retain the majority of the earnings produced in the form of interest payments by cutting out the intermediary.
Of course, peer-to-peer lending is riskier than a regular savings account, but a well-diversified portfolio of high-quality loans may provide double-digit yearly returns.
This return is far larger than that of a savings account over the same time period, and the risks are more than compensated by the increased financial gains generated by this activity.
Prosper and Funding Circle are two of the most popular P2P platforms accessible to US investors.
If you have $100,000 to spare, at least two or three of the alternatives we discussed above have probably sound like an appealing choice as potential investment opportunities. What you are attracted to will largely depend on your financial goals, Tolerance to Risk, and other similar factors.
Rather of placing all your eggs in one basket, spread your investments among a large number of uncorrelated alternatives. You’ll reduce your risks and possibly sleep better as a result.
“what to do with 100k in the bank” is a question that many people ask themselves on a regular basis. Here are 15 different ways of investing $100,000.
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